Split loan, variable interest rates, fixed interest rates or split mortgage. All these terms can be a little confusing at first but once you realise they are just different types of loans all starts to make sense!
A split loan is a little different to normal types of loans you may have heard about before. A split loan means that you can divide up your loan and allocate each portion a different loan type and therefore, interest rate.
So for example you could allocate a fixed interest rate to 50% of the loan and a variable interest rate to the other 50%. Whilst predicting interest rate isn’t an exact science, portioning up your home loan is a good idea when interest rates appear unpredictable at best. Why? If interest rates go up, only half of your loan will be negatively impacted (the variable portion), because the fixed portion will remain at the rate you fixed it at for the term you agreed with your lender. E.g. for 3 years.
A split loan a good way to organise your home loan in a market that fluctuates often.
Having a percentage of your home loan at a fixed rate insures you against interest rate rises whilst the variable portion leaves you secure if interest rates fall, which then allows you to make additional payments if you need to on that percentage of loan.
Once you know and understand the facts surrounding split loans it’s hard to imagine not going with one as it can hedge your bets, however, there are other things to consider.
One of the benefits of a fully fixed rate loan is that you know exactly how much repayments will be for the foreseeable future and you are somewhat protected from interest rate rises within the fixed term. If rates to happen to drop, you lose out – but at least you have constant repayments.
With a fully variable rate you have the potential to pay off the loan sooner if rates drop but if interest rates rise, so will your repayments – meaning it will take longer for you to pay off your loan or you need to increase your repayments each month.
Most of the big banks as well as some of the smaller ones offer split loans upon applying.
Choosing a split loan shouldn’t really impact who you decide to go with for your loan. However, if you’re still unsure what type of loan will suit you and your needs consult one of our mortgage advisers or speak to your current lender about your options and what is going to work with your financial situation.
Remember, your decision could impact your financial position so you need to feel 100% comfortable at all times.