Is Split Rate Home Loans the Best of Both Worlds?

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Many borrowers feel the split rate home loan is the best of both fixed and variable rate loans. As the name suggests, this loan allows you to divide your home loan into two parts: a portion which has a variable rate and a part with a fixed interest rate. Each part has the distinctive features of the loan type.

A borrower can choose how the loan is divided. For example, if you borrow $500,000 for your home, you can choose a 50/50 split with $250,000 fixed and the same amount variable. You can also choose another ratio you find acceptable.

Borrowers who have concern over the direction of interest rates find the split rate home loan attractive. Because the loan combines the best of both fixed and variable home loans, it is suitable for nearly everyone.

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Pros of Split Rate Home Loans

  • You can budget with greater accuracy because of the fixed portion of the loan
  • Typically, lenders allow extra repayments on the variable portion of the loan
  • The variable repayment amount can decrease if interest rates fall

Cons of Split Rate Home Loans

  • Rising interest rates will cause your repayment amount on the variable portion of the loan to rise
  • Because you technically have two home loans, you may get fees charged for both loans

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