Split Rate Loan
A split rate loan allows you to split your home loan into two parts: one with a fixed interest rate
and the other with a variable rate. It’s a smart way to combine the benefits of both: certainty of
fixed rate and flexibility of variable rate.
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What Is a Split Rate Loan?
With a split rate loan, the fixed portion of your loan stays the same for a set period, meaning your repayments will be predictable. On the other hand, the variable portion can change based on market interest rates, so your repayments could increase or decrease. This gives you the stability of fixed repayments while still allowing you to benefit from the flexibility of the variable rate.
Why Consider a Split Rate Loan?
Fixing part of your loan protects you from rising interest rates. This can make your repayments more predictable and help you budget better. The variable portion gives you more flexibility. You can make extra repayments to pay it off faster, saving on interest over time. Variable loans may also offer features like redraw facilities or offset accounts, so you can access extra repayments if you need them. A split loan combines the strengths of fixed and variable loans. You don’t have to choose one or the other—you can enjoy both.
Things to Keep in Mind
While split rate loans have their benefits, there are some downsides you should consider:
- Limits on Extra Payments: The fixed portion of your loan usually doesn’t allow extra repayments, or if it does, there may be caps or fees.
- Variable Rate Risks: If interest rates go up, your repayments on the variable portion will increase, which could affect your budget.
- No Flexibility on the Fixed Portion: If interest rates drop, you won’t benefit from lower repayments on the fixed part of your loan—it’ll stay locked at the agreed rate.
Pros and Cons of a Split Rate Loan
Pros:
- Protects part of your loan from interest rate increases.
- Makes it easier to budget with predictable fixed repayments on part of the loan.
- Allows you to make extra repayments and save on interest for the variable portion.
Cons:
- The fixed portion may have restrictions on extra repayments.
- Repayments on the variable portion will go up if rates rise.
- You won’t save on the fixed portion if interest rates fall.
Is a Split Rate Loan Right for You?
A split rate loan is a good option if you want a mix of stability and flexibility. It’s perfect for borrowers who want to protect part of their loan from rate increases but still want the freedom to pay it off faster or save on interest when rates are low.
Before you decide, think about your financial goals, how comfortable you are with interest rate changes, and which features matter most to you. Talking to a mortgage broker or financial adviser can help you figure out if this type of loan is the right fit for you. So, what are you waiting for? Schedule a call today.
