What is a split home loan Australia?

Split home loans combine fixed and variable portions of a loan to offer you the best of both worlds.

With RBA raising interest rates to a decade-high of 4.10%, taking time to consider the structure and type of your home loan could save you thousands of dollars.

A split loan is when you divide a mortgage into separate parts, giving you greater flexibility with a combination of fixed and variable rate components.

In this article, we uncover how split loans work and the benefits of a split home loan.

  • A split loan divides your loan into multiple parts with a combination of fixed and variable rates.
  • Variable rates change over time in line with RBA interest rates while fixed rates are locked for a certain period.
  • The benefits of splitting a mortgage include flexibility and tolerance to interest rate changes.
  • There is no set number, but common split ratios vary, but can include 50:50, 60:40 or 80:20.
  • It is possible to refinance a split home loan - A UNO Broker can help you do this.

What is a split home loan? How does a split loan work?

A split loan or 'combo loan' is dividing your loan into parts. You might put one portion of your loan on a fixed variable rate and the rest at a variable rate.

It is important to remember that variable rates are subject to interest rate movement while fixed rates are locked for a set period.

With a split loan, you can get a combination of fixed and variable rates.

Navigating fixed and variable rates

'Should I fix my home loan rate' is a common question as interest rates fluctuate.

There are many pros and cons with fixed and variable home loans which can make deciding tricky. A split home loan gives you the best of both options by locking a portion of your home loan and leaving the other at a variable rate.

A split loan could help offer flexibility, save time, and minimise the risks of drastic repayment changes.

Many lenders offer fixed rate options, such as fixing your interest rate for 1-5 years or 1-3 years. This can be an attractive option for homeowners if interest rates are increasing.

But the opposite might be true if interest rates are set to decrease. In this case, fixed interest rates don't give you the flexibility that variable rates do.

Variable rates often come with many additional features. They can give you the ability to make extra repayments or access an offset account but some fixed rate also have partial or complete offset.

Split loans can help manage risk

Diversification is often key in finance. Splitting your loan could help you navigate the risks of interest rate changes.

The cash rate in October 2023 is 4.10%, up from 2.6% in October 2022. This represents an extra $400 a month in repayments for an average 30-year mortgage - or $200 if half your loan is split on a fixed rate. Splitting a home loan could help curve the impact of future interest rate changes, potentially saving you thousands in interest. The difference illustrated above, for example, equates to about $150,000 across the life of a loan*. They could also offer stability by making it easier to budget for the fixed component of the loan.

What are the disadvantages of splitting a home loan?

There are advantages to a split home loan, but there are also drawbacks including:

  1. Fluctuating repayments - If a portion of your home loan is variable, your monthly repayments might change if interest rates vary. This could make budgeting harder.
  2. Interest rate changes - If interest rates increase, your variable loan portion will increase. Conversely, an interest rate drop might mean you don't fully benefit if your fixed rate portion remains steady.
  3. Fees - Lenders charge fees and having two loan products could result in different fees. Some loans also have break fees if you want to leave a loan early. A UNO Broker can help you navigate fees.

What is a good split loan ratio?

There is no typical rate, but common split loan ratios include 50:50, 60:40 or 80:20 two-ways with a fixed and variable rate.

In most cases, you can choose to split your loan however you like, provided you meet your lender's minimum loan amount. Some lenders won't allow more than two splits, but a UNO Broker can help find the best option for you.

The 'ideal' split comes down to your financial needs and personal circumstances. You should discuss your financial situation, plans, and risk level with your broker to determine which rate is right for you.

There are many potential splits. For example, you could opt for a 10% fixed rate with a 90% variable rate; or 50% fixed and 50% variable. If you are looking to borrow $500,000 in total, splitting 50% fixed and 50% variable would mean you are borrowing $250,000 on the fixed rate product and $250,000 on the variable rate product.

Can you refinance a split loan?

Yes, you can refinance a split loan. The process may involve a bit more paperwork if there are two loans, but working with a mortgage broker can make this process easier.

A UNO Broker can help you refinance your split loan while giving guidance on navigating different split structures and loan options.

Making extra repayments on a split loan

Fixed interest rate products often have restrictions on the amount of extra repayments you can make per year or during the fixed rate period without incurring a penalty (often known as a ‘break cost’ or ‘prepayment fee’).

The amount allowable will vary from lender to lender but, generally, a fixed rate product will allow you to make up to $10,000 per year without penalty. That means fixing your whole loan may restrict you in only making up to $192.30 each week in extra repayments.

If you intend to add an additional $1500 to your minimum monthly repayments (or $18,000 in extra repayments per year), then fixing 100% of your loan will not give you that flexibility.

Split rate home loans: the bottom line

You get the best of both with a split rate home loan. But nothing is perfect.

Splitting your loan into fixed and variable portions is a great way to provide flexibility. It can lower the risk of exposure to interest rate changes and repayment hikes. The variable component can enable to access mortgage features not typically available on a solely fixed rate.

Equally, split loans can also be beneficial in the event of fall, you are locked into your rate and simply cannot capitalise on the option to make less in repayments. However, if part of your loan is variable, then you can still benefit from the decrease in interest rate on the variable portion, paying less in repayments and interest. Wondering whether to go fixed or variable? A combination of the two could be the answer you're looking for. Talk to a UNO Broker today to discuss your options.

5 stars for our service reviews from clients

Want help navigating a split loan?

  • What the split should be
  • How to use IO effectively
  • Strategies regarding splits for debt consolidation
Book Call Now

UNO home loans

November 29, 2023
Try Plans, by UNO
Mortgage calculators completely reimagined
Get Started
Considering a purchase or refinance?

Try Plans by UNO

Mortgage calculators completely reimagined
Get Started
☎️ 🚫 No cold call promise

Related Articles

TESTIMONIALS

What our customers are saying

Kathryn Cretney
November 14, 2024
5 stars for our service reviews from clients
Paul helped us from day one before we even arrived in Australia so we knew exactly what we needed to prepare. He’s got a tonne of knowledge and was really lovely and supportive to deal with. Helpful and easy going. Would highly recommend - now in our first Aussie home and Paul made the process all very easy!
Read more
Sean O'Neill
November 14, 2024
5 stars for our service reviews from clients
We received excellent service and a tailored solution to our home loan requirements from Uno. Paul kept us informed at all milestone stages and throughout the process he demonstrated a ‘can do’ attitude that ultimately allowed us to get over the line and meet our deadline. We’re most grateful and very impressed. Highly recommend
Read more
Crush Huston
November 8, 2024
5 stars for our service reviews from clients
Paul is an amazing broker. Communicative, responsive and knows his stuff! Highly recommend
Read more
Amanda Pearce
November 7, 2024
5 stars for our service reviews from clients
After just four months in Australia, our New Zealand home sold, prompting us to stop renting and invest locally. We found Paul through a Kiwi Facebook group, and his exceptional service exceeded our expectations. From initial contact, Paul provided clear explanations, friendly communication, and prompt responses to our queries, making our mortgage process remarkably smooth. We highly recommend him.
Read more
Dom Saric
November 3, 2024
5 stars for our service reviews from clients
Mike Parsons went above and beyond to ensure that our refinancing journey was painless and successful. He was communicative, accessible (even working while on holidays!), and his knowledge of the systems at play meant that he picked up on things that other brokers missed. Would 100% recommend Mike, and will definitely be back next time we need a broker.
Read more
Ashleigh Breaden
October 31, 2024
5 stars for our service reviews from clients
Mike Parsons handled our refinance of our home loan with ease and a depth of knowledge that ensured we got the best deal possible for our situation. We didn't have an easy one to solve for with my husband being self employed and we were consolidating finances as well for a car loan. But Mike handled it all for us and once we had provided him with all the documents we literally didn't have to do a thing after that, it was so easy and so quick we are super happy with the experience! Top notch! Highly recommend!!
Read more
Kyle Richards
October 10, 2024
5 stars for our service reviews from clients
Absolute legend, helped me through the first home buyers scheme, explained everything in a way that made sense, was very knowledgeable and a joy to work with.
Read more
Chloe S
October 8, 2024
5 stars for our service reviews from clients
Mike Parsons made it possible for us and the in laws to get 2 pretty complicated home loans. He helped us through everything and we'd be happy to use Mike and the team again for anything we needed. Thanks again!
Read more
Sam Rezai
October 2, 2024
5 stars for our service reviews from clients
I have gone through 6 different mortgage brokers prior to meeting Andrew Wyers. He is the most patient mortgage broker I’ve encountered and also the most knowledgable about the bank’s lending process and products available. It took me 1 year to find a house I was happy with and Andrew was always there to assist with any issues or questions I had; he always return my phone call, even on the weekends or when his away on holidays. The loan process was smooth and I had no complications. The process with Andrew was again nice and easy, he took the time to find and put together the right package that was suited to my situation. I have recommended Andrew to my family & friends and everyone have been grateful and completely satisfied with his service.
Read more
S Wilko
September 23, 2024
5 stars for our service reviews from clients
I had not dealt with Scott or UNO before finding them on the internet. Even as an Australian citizen living and working overseas, I knew obtaining a loan would be difficult. However, Scott went above and beyond what I expected from a mortgage broker. I genuinely don’t think you could find another company that works as hard as they did to get my home loan approved. I cannot recommend them highly enough. Everyone I dealt with at UNO were extremely professional and helpful. If you are looking for a broker, you would be mad not to give them a go. Thanks to Scott Wilkinson, Dalby Bajwa, Jena Lasquite and Andrew Pacini. Shaun.
Read more
Patrick Winters
August 14, 2024
5 stars for our service reviews from clients
For the past three years, it has been an absolute pleasure to work with Mike Parsons. He has consistently helped us navigate commercial property loans with skill and efficiency. Mike’s timely and professional responses to our inquiries have been invaluable. We have built a strong, reliable relationship with him and eagerly anticipate continuing our collaboration in the future. We highly recommend his services.
Read more
Lee Robibaro
August 6, 2024
5 stars for our service reviews from clients
I am so thankful and grateful to have Scott Wilkinson as my broker. He not only looked after me every step from start to finish he gave me confidence and I was able to trust him and his expertise. My children and I are now happy in our new home and very appreciative of Scott's help. I will definitely be only having Scott as my broker from here onward as there is no mucking around and straightforward answers. Thanks again
Read more