What is a split home loan?

17 August 2020

What is a split home loan?

Split home loans

A split home loan has both a fixed and a variable interest rate applied to the amount you borrow.

The interest rate on part of your loan is fixed for a specific period, usually up to a maximum of five years. The interest rate on the rest of your loan is variable and can move up or down based on market rate movements. Interest rates in Australia are currently at record lows.

Split loans provide you with the security of a fixed rate for part of the amount you owe. You will be protected from market interest rate rises on that part of your loan balance. However, if market interest rates fall, your rate won’t fall on the fixed interest component.

You can usually choose the amount that will be split between fixed and variable rates on a split home loan. For example, 50/50, 70/30, 80/20, etc.

How much can you save with split home loans?

How much you can potentially save on a split home loan depends on:

  • market interest rate movements. You’ll only save if variable rates rise during your fixed rate period,
  • the length of your fixed rate period,
  • the amount you borrow, and
  • your fixed rate percentage split.


Imagine that two couples borrow $400,000 for their respective homes.

Couple 1 splits their loan 50/50 between fixed and variable rates (i.e. $200,000 has a fixed interest rate of 3% applied to it for five years, and $200,000 has a variable rate).

Couple 2 takes out a variable rate home loan for their entire balance of $400,000 at an interest rate of 3%.

If variable rates increase by 1%, Couple 2’s monthly repayments will increase by approximately $214 on a standard 25-year term to cover the increased interest charge.[i]

Couple 1’s repayments on the other hand will only increase by approximately half that amount (because the interest rate will only increase on the $200,000 variable rate component). This saving will continue until the fixed interest rate period expires.

What are the pros and cons of a split home loan?

There are both pros and cons of split rate home loans. Whether this type of loan is suitable for you depends on your individual circumstances and future market interest rate movements.

Advantages of split home loans

  • The fixed rate component provides you with a degree of repayment certainty.
  • The variable rate component provides you with a degree of flexibility if market rates decrease.
  • You can make additional repayments on your variable rate component.

Disadvantages of split home loans

  • The fixed rate component locks you into higher repayments if variable interest rates decrease.
  • You will have higher repayments on your variable rate component if market interest rates increase.
  • There may be a break fee charged by your lender if you want to end your fixed interest rate period early.

How we can help

At Wisebuy Investment Group in Newcastle, our experienced and licensed brokers can help you to find the right loan for your needs, including split home loans. We can also help you with your application.

Contact us today for an obligation-free chat! We’ll take the time to understand your individual needs before providing you with appropriate advice. Our focus will be on finding the right loan for your needs from over 60 Australian lenders.

And best of all, our service is free!

[i] https://www.moneysmart.gov.au/tools-and-resources/calculators-and-apps/mortgage-calculator#!how-much-will-my-repayments-be