For borrowers with more than one home loan, arranging a Split rate home loan may be a great idea. A split home loan is one home loan that covers all your debt however it’s split into one or two or more accounts. One account might be for your home loan on your family owner-occupied home. Another account might be for an investment property and so on. A portion of the debt (such as the debt on your family home) will be calculated on a Principal and Interest basis and the investment property debt might be calculated on an interest-only basis.

The other reason people invest in split mortgages or combination-style split home loans is as a way of hedging their best. For home owners who are concerned about interest rate fluctuations and how they impact their mortgage repayments, they can split their debt so a portion of the debt is calculated at a fixed interest rate and a portion is at a variable interest rate. Doing this gives them the best of both worlds. So – thanks to the split rate home loan, if interest rates rise their mortgage repayments on the fixed portion of the debt stay the same. It’s only the mortgage repayments on the debt that has a variable interest rate will stay the same.

Benefits of a split rate home loan

Having a portion of your debt at a fixed interest rate offers you protection should interest rates rise.
Placing a portion of the debt at a variable rate enables you to tap into interest savings if interest rates fall.
You can make extra payments on the variable part of the loan debt.

Potential pitfalls of a split rate home loan

Because only part of the debt is on a variable rate you won’t benefit fully from interest rate reductions.
You may find that you’re not allowed to make extra repayments on the fixed part of the loan.
Exit penalties may apply if you pay out the fixed portion early.

A split mortgage is a sophisticated style of loan product with many features to consider to ensure that it works properly for the borrower. With that, it’s important to speak with someone who is an expert in debt combination using split rate home loans. Our Wealth Concerns mortgage brokers can help you identify the right split loan an the right structure that suits your needs.

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