Loan Types
Split Loan
A split loan is a unique type of home loan that combines both fixed and variable interest rate components within a single loan structure. With a split loan, borrowers have the flexibility to allocate a portion of their loan amount to a fixed interest rate and the remaining portion to a variable interest rate, hence "splitting" the loan into two parts. This dual-rate structure offers borrowers the benefits of both fixed and variable rate loans, providing a balanced approach to managing interest rate risk and repayment certainty. One of the key features of a split loan is its flexibility. By dividing the loan into fixed and variable components, borrowers can enjoy the stability of fixed repayments on a portion of their loan while still benefiting from the potential savings and flexibility of variable rate repayments on the other portion. This versatility allows borrowers to tailor their loan structure to suit their individual preferences and financial goals, whether it's locking in a competitive rate for a portion of their loan to provide repayment certainty or retaining the flexibility to make extra repayments or access redraw facilities on the variable portion of the loan.
Features:
Flexibility: They offer borrowers the flexibility to allocate their loan amount between fixed and variable interest rates, providing a customizable loan structure tailored to individual needs.
Rate Stability: The fixed-rate portion of a split loan provides borrowers with repayment certainty and protection against interest rate fluctuations, ideal for budget-conscious borrowers seeking stability.
Potential Savings: The variable-rate portion of a split loan offers the potential for interest savings and additional features such as offset accounts and redraw facilities, providing borrowers with greater flexibility and potential cost savings over the life of the loan.
Pros:
Risk Management: They allow borrowers to hedge against interest rate fluctuations by diversifying their loan structure, providing a balance between rate stability and potential savings.
Customisation: This type of loan offers borrowers the ability to tailor their loan structure to suit their individual preferences and financial circumstances, providing greater control and flexibility over their mortgage
Cons:
Complexity: Managing a split loan requires careful consideration and ongoing monitoring of interest rate movements, repayment strategies, and loan features, which may be more complex compared to traditional fixed or variable-rate loans.
Potentially Higher Costs: Split loans may incur higher costs, including establishment fees and ongoing fees, compared to standard fixed or variable-rate loans, depending on the lender’s fee structure and loan terms.
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Fixed Rate Loan
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This is where the interest rate of a loan is guaranteed to remain the same.
Construction Loan
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May be most suitable if you are building your own home or investment property.
Line Of Credit
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Access to the equity in your home or investment property up to a pre-approved limit.
Split Loan
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Make part of your home loan a variable rate and part a fixed rate, you decide how much you allocate to each.
Guarantor Loans
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A family member uses the equity in their property as additional security against your loan.
Bridging Finance
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Bridging finance allows you to use the equity in your existing home to finance your new one.
FAQ
A split loan is a type of home loan that combines both fixed and variable interest rate components within a single loan structure. With a split loan, borrowers can allocate a portion of their loan amount to a fixed interest rate and the remaining portion to a variable interest rate. This dual-rate structure provides borrowers with the benefits of both fixed and variable rate loans, offering a balanced approach to managing interest rate risk and repayment certainty.
The split ratio refers to the percentage of the loan amount allocated to the fixed and variable rate components. The decision on the split ratio depends on factors such as the borrower's risk tolerance, financial goals, and outlook on interest rates. A common approach is to allocate a larger portion to the fixed rate for stability and a smaller portion to the variable rate for flexibility. However, the optimal split ratio varies for each borrower, and it's essential to consult with a mortgage broker to determine the most suitable split for your individual circumstances.
TThe features available on a split loan depend on the lender and the specific loan product. While some lenders offer additional features such as offset accounts, redraw facilities, and the ability to make extra repayments on both the fixed and variable rate portions of the loan, others may restrict these features on the fixed rate portion. It's essential to review the loan terms and features carefully to understand the flexibility and limitations of the split loan product.
If interest rates change during the term of a split loan, the impact depends on the proportion of the loan allocated to fixed and variable rates. The fixed-rate portion provides repayment certainty, unaffected by interest rate fluctuations, while the variable-rate portion may experience changes in repayment amounts in response to interest rate movements. Borrowers benefit from this dual-rate structure by mitigating the impact of interest rate changes on their overall loan repayments.
Some lenders offer flexibility for borrowers to switch between fixed and variable rates on their split loan, allowing them to adjust their loan structure in response to changing market conditions or financial goals. However, switching between rates may incur fees or restrictions, depending on the lender's policy and the terms of the loan. It's advisable to consult with a mortgage broker to assess the implications of switching rates and determine the most appropriate course of action based on your individual circumstances.