Split Loans — Fact Sheet

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This fact sheet is reproduced for general information purposes only.

It is an industry-standard explanatory document and has not been authored by Model Mortgages.

It does not provide personal advice.

Split loans

A split rate home loan allows you to divide your home loan into multiple loan accounts that attract different interest rates.

A common example is splitting your loan so that one portion has a variable interest rate and the other portion has a fixed interest rate.

For example, if you require a loan amount of $350,000, you may choose to split your loan so that $250,000 is at a variable interest rate and $100,000 is at a fixed interest rate. This allows you to retain the flexibility of a variable rate loan while also enjoying interest rate certainty on part of the loan.

Benefits of a split loan

• Split loans allow you to access the benefits of both variable and fixed rate loans at the same time.
• The fixed rate portion of the loan provides some protection against sudden interest rate rises.
• The variable rate portion allows you to benefit from interest rate decreases.
• You can usually make extra repayments on the variable portion of the loan, which may help you pay it off sooner.
• The variable portion may also allow access to features such as an offset account or redraw facility.
• There are generally no restrictions on how the loan is split. For example, a loan may be split 50/50 or 30% variable and 70% fixed. However, most lenders only allow two splits.

Things to consider

• If interest rates fall, you may miss out on potential savings on the fixed portion of the loan.
• If interest rates rise, repayments on the variable portion of the loan will increase.
• There may be additional costs associated with maintaining a split loan structure.
• If you need to pay out the loan early during the fixed rate period, early repayment costs may apply.
• It is important to consider your likely position over the next five years when choosing a loan structure and features.

Break costs

The fixed rate portion of a split loan may be subject to break costs if:

• you exit the loan before the end of the fixed rate period
• you prepay part or all of the loan before the fixed rate period ends
• you switch to another product, interest rate, or repayment type
• you sell the property during the fixed rate period

Calculating break costs

Each lender uses a different formula to calculate break costs, and these formulas are complex.

In general terms, if the current wholesale interest rate for the remaining fixed period is lower than the wholesale rate when the fixed rate commenced, a break cost is likely to apply.

Disclaimer

The information provided in this fact sheet is not legal, taxation, or financial planning advice.

It has been prepared without considering your objectives, financial situation, or needs.

All loan products are subject to lender criteria and approval. Fees, terms, and conditions apply.

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