A split rate home loan allows you to have a portion of your home loan at a fixed interest rate and the remaining portion at a variable interest rate. You can choose what portion of your home loan to be fixed and what portion is to be variable e.g. 50% variable and 50% fixed, or a 65% variable and 35% fixed split. The split rate home loan is a great compromise between the benefits and drawbacks of fixed and variable interest rate home loans.
For example, if you need to borrow $400,000 to purchase a property, but would like the benefit of repayment certainty, but would also like the ability to pay off more than your scheduled repayments then a split home loan would be ideal for you. You could take $300,000 at a fixed rate and $100,000 at a variable rate. You will then have certainty on your repayments for the $300,000 portion of the home loan but will also be able to make additional repayments (in addition to your minimum/regular repayments) on the variable portion of the loan too.
Split Rate Home Loan Advantages
- Your regular repayments will vary less when interest rates change giving you added security.
- If your lender reduces its interest rates, then your regular repayments on the variable portion of the home loan will decrease.
- You can budget more accurately than a full variable rate home loan.
- Extra repayments are allowed on the variable portion of your home loan giving you added flexibility.
Split Rate Home Loan Disadvantages
- Additional home loan repayments are limited to the variable portion only.
- Your regular repayment amounts will increase on the variable portion of the loan if your lender adjusts its interest rate upwards (this could happen for several reasons).
- As you have in effect two types of loan, you may pay fees on both.
Most Suitable For
- Given the split home loan is a combination of both fixed and variable home loans, these are great for almost anyone.
- Persons struggling to predict the likely direction of interest rates, as split rate loans provide an excellent way to hedge your bets on possible interest rate movements.
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