What is a split home loan?

A split home loan is a home loan that allows the borrower to nominate a proportion of their loan as fixed and a proportion as variable. Playing both sides of the fence like this allows borrowers to more accurately manage their home loan’s level of risk and security.

For example, split loans with a larger fixed component afford borrowers more stability than a 100% variable rate loan, whilst still allowing them to make additional repayments so that they can pay off their home loan sooner.

And split loans with a larger variable component afford borrowers more flexibility than a 100% fixed rate loan, whilst minimising their exposure to sudden interest rate fluctuations, so that they can budget more accurately.

It’s a considered choice between predictability and flexibility.

Case study

Sarah and Peter borrow $440,000 to buy a $600,000 apartment.

If they opt for a fixed rate home loan with an interest rate of 1.99% and a two-year term, they will pay $1,634 a month (including $10 monthly fees and based on a 30-year loan period).

If they choose a variable rate loan at 3.5%, they will initially pay $1,976 a month, although their repayments will rise to $2,101 a month if the bank raises rates to 4%.

Given Sarah and Peter plan to have a baby soon, they decide to fix 70% of their home loan for 2 years to reduce their exposure to potential interest rate hikes and make it easier to stick to their budget.

Choosing a split loan rather than a fixed rate loan still allows them to make extra repayments when they can afford to do so. They are also able to put money into an offset account to reduce the interest they pay on the variable portion.

If you want to know more about your options, speak to your RAMS Home Loan Specialist today. If you’re ready to split your loan, skip the paperwork and call us on 13 RAMS that’s 13 7267, and we can get it done for you over the phone.

Originally published on realestate.com.au ‘Should you choose a fixed, variable or split loan?’.

Things you should know: Credit criteria, fees & chares apply. This information is general in nature and has been prepared without taking your objectives, needs and overall financial situation into account.