SPLIT LOAN ADVICE FOR AUSTRALIAN BORROWERS
Information, money saving tips and independent commentary on Split Rate Home Loans

Split Rate Home Loan



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What is a Split Rate Home Loan?

Split Rate Loans are popular in times of uncertainty about interest rates, especially if rates are moving up, because borrowers can hedge their bets on whether future rate changes will be up or down.

Taking part of the loan out at a fixed interest rate means no matter what happens to Interest rates your repayments for the fixed interest component of the loan will remain constant. This is obviously a bonus when rates are rising.

The second component of the loan is taken out with a variable interest rate. If interest rates fall then repayments for this section of the loan will also fall.

For borrowers, this means you have an each way bet on which way interest rates are going to move. If rates go up you are partially insulated and if rates go down you are also partially protected.

Split loans can take some of the stress out of borrowing during times of volatile rate fluctuations. For those on a tight budget, it can help you sleep better at night without having to worry so much about loan repayment increases.


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Split Rate Loans

Split rate home loans are a combination loan consisting of a variable interest component and a fixed interest component. The proportion of each component can be varied to suit your requirements.

Listed below are features and benefits of variable and fixed rate loans that go together to form a split loan in the proportions decided by you.

Features of Standard Variable Loans

Probably the main advantage of variable rate loans is that there is no penalty in paying the loan off quicker by making additional payments.

Less important now that interest rates are rising again is that if there is a reduction in official interest rates, your repayments also reduce.

Other useful features can include offset accounts, a split loan facility, redraw facility, direct salary crediting, portability and repayment options.

Benefits of Standard Variable Loans

  • The redraw facility means you have easy access to extra funds if required.
  • Increasing your repayments above the agreed amount can shorten the term of the loan and save thousands of dollars in interest.
  • If you want to sell your existing house and buy another one you can often take the loan with you saving on loan fees.
  • It is easy to vary the repayment periods to suit your paydays etc.(weekly, fortnightly, monthly)

Features of Fixed Interest Loans

A Fixed Interest Rate Loan is usually 1 - 2.5% more expensive than a variable rate loan. Probably the main advantage of fixed interest rate loans is the stability of knowing what your repayments are going to be for the period of the loan. This is particularly important for investors with multiple properties, especially if they are negatively geared.

It is important to realise that if official interest rates fall you may end up paying more in repayments than if you had a variable rate loan.

Fixed Interest Loans do not usually have many of the features found in Variable loans, such as repaying the loan without penalty.

Benefits of Fixed Rate Loans

  • Stability of repayments makes budgeting easy.
  • Possible cost savings when interest rates are rising.

Tips and strategies

  • Avoid loans with monthly account fees
  • Making weekly or fortnightly repayments pays your loan off faster than monthly payments because you are making 1 or 2 extra repayments per year
  • When interest rates drop retain current repayment levels
  • Have your wages paid into your loan account to reduce interest and use the interest free period on a credit card for purchases before paying the credit card bill from the loan account
  • Put lump sum payments like tax refunds into your loan account. If required later, use the redraw facility.

Example Rates and Fees

Variable Rate Home Loan NO FEES (June 2016):
  • Monthly fee NIL
  • Annual fee NIL
  • Redraw fee NIL
  • Extra Payment fee NIL
  • Fixing fee NIL
Low Rate 5.60% std. variable
CCR 5.60%*
*Based on $250,000 Loan over 25 years.

You can apply over the Internet and ask a Lending Professionalfor a free no-obligation quote on a Split Rate Loan.






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