Real Estate

Split loans: are they a good idea for me?

Split loans: are they a good idea for me?

The property times they've certainly changed in 2022, with a key change being that of interest rates finally rising after an 18-month-long stall at 0.1%.

So, as you consider our property plans for 2023, refinancing to a split loans may well be high on your agenda.

Let's take a look at the Split Loan World.

Split loans: what are they?

Also known as partially-fixed interest loans or combination loan structures, split loans are the perfect comprise between fixed-rate and variable loans.

Split loans are still technically just the one loan that you take out from your lender.

But they give you the financial security and stability of a fixed-rate loan  - where your interest rates don't change until your loan expires - and the flexibility and great inclusions of a variable loan.

Split loans can be a great idea for first-home buyers unsure of the mortgage game or in a property market that's a little too dicey for your taste.

And the great thing is you get to choose how much of your loan is fixed, and how much is variable, with each component subject to the rules and regulations of each type of loan.

For example, if you decide you want 80% of your split loan to be fixed, then 80% of it will be held secure from interest rate changes and won't be flexible.

Your lender will also only charge you a fixed interest rate on 80% of your loan ie $300,000 rather than the full amount.

The remaining 20% that you decide will be variable will see 20% of your mortgage repayments slide up and down with the RBA's monthly cash rate decisions - but will also be nice and flexible and enjoy more helpful inclusions.

Split loans: are they a good idea for me?
It's important to know and understand the market very well before deciding on a split loan as the difference in your fixed and variable components will be large.

Split loan benefits

  • You get to choose which part is fixed and which is variable
  • Your loan repayments are partly secure and not so susceptible to the changes of a dicey property market - and vice versa
  • You may be able to pay off your loan faster than you would with a 100% fixed or 100% variable loan

Split loan disadvantages

  • You'll lose the full advantage of a market with dropping rates
  • You may well find you need to pay two very different interest rates within your one split loan, especially in today's market

Are split loans a good idea in the current property marketplace?

Possibly.

No one knows when the current rate rises will end although our favourite experts are forecasting they'll at least slow down by mid-2023, and probably sooner.

Fixed-rate and variable loans come out in the wash looking fairly similar - when it comes to rates, that is.

It's important to know and understand the market very well before deciding on a split loan as the difference in your fixed and variable components will be large.

Look at the available options on both sides of the split rate story and in the end, it will come down to whether you want flexibility and inclusions (variable loans) or stability and security (fixed-rate loans).

How do I apply for a split loan?

The same way you would for a 100% fixed-rate or 100% variable loan, as essentially, you'll still be applying for one loan.

Some lenders might not offer split loans or will have different rules and regulations around them, so as soon as you know which loan ticks your boxes, ask them whether a split option comes with it.

As well, check whether your lender applies a minimum and maximum dollar or percentage amount in terms of how your split loan can be divided.

There may also be extra fees and payments that come with your lenders' split loan options.

Finally, think about your long-term mortgage goals especially when it comes to your fixed-rate component.

We're here to help

Whatever home loan road you wish to take, we’d love to help you travel it!

We can find you the best home loans from more than 40 of Australia’s biggest banks and specialist lenders and we can also help you refinance your loan to help you keep more money in your pocket.

So, give us a call today at Lending Loop.

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