Should I split my mortgage?

3rd October 2016

Torn about what to do with your home loan? While fixing your home loan can offer you security and stability, opting for a variable rate can let you take advantage of interest rate drops. If only we could have the best of both worlds...

I think you already know where I'm going with this!


Why should i 'split' my mortgage?

While many believe they must make a decision between the safety of a fixed rate, and the flexibility of a variable, this is certainly not the case in the modern day of mortgages. Many lenders now give borrowers the opportunity to split their home loan, so that they can capitalise on the benefits of each structure, while mitigating the associated risks.

If one was to fix 100% of their home loan, they would benefit from knowing that there repayments remain consistent week after week, and they can budget accordingly. On the flip side, if interest rates did indeed drop - those with fixed mortgages will be stuck paying more than they need to.

Inversely, if one chose to stick with a variable rate for 100% of their home loan, they would be able to ride the wave as interest rates descend (just as they have done recently). However, the reverse also applies; were rates to spike, the variablers (as they shall hence forth be known) would see their repayments increase too. Thus, budgeting becomes more difficult.

Enter: the magical split loan. By leaving a portion of the mortgage fixed, and a portion variable, borrowers can benefit from both of the above. This would reduce concern about interest rates rising as the effect would be less dire, but it still allows you to (in part) capitalise on any rate reductions. 'Splitting' your loan is the ultimate balancing act within the finance sphere, and certainly a method that should be considered given the current economic climate.


How do I 'split' my mortgage?

Many lenders in Australia are now joining the party when it comes to allowing borrowers to split their loans. 'Split' is not a loan type per say, rather a feature of particular loans. If you have a basic 'no frills' type loan product, then you may not be able to utilise this feature - your mortgage broker will be able to determine this nice and quickly.

If you want to split an existing loan, you shouldn't have to complete a full refinance (unless you are unhappy with your current lender). Your bank will likely allow you to 'switch' your current product by signing a simple contract variation - little time, no hassle. In most cases, you will also be able to divide your loan by percentage. For example, you might choose to fix 60% of your loan, while leaving 40% free to make the most of fluctuating interest rates. And why stop at one?! Split your loan twice, three times even! Of course, don't just get trigger happy because you can; it is important to seek individual advice to ensure this is approach suits your needs.


When should I 'split' my mortgage?

There is no time like the present! With interest rates sitting at record lows, now could be the perfect time to fix a portion of your home loan. And if the Reserve Bank of Australia (RBA) do happen to cut the cash rate further, you need not worry as your variable portion will still reap the benefit! Win, win ✔️

To learn more about this approach and to see whether its right for you, contact your local broker today.




Disclaimer: The advice provided in this article is general advice only. It has been prepared without taking into account your objectives, financial situation or needs. Before acting on this advice you should consider the appropriateness of the advice, having regard to your own objectives, financial situation and needs. We encourage you to consult a finance professional before acting on any advice provided in this article or on this website.

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