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What is a split home loan and how can it help?

A young couple in sitting around a kitchen island.

When you compare home loans, there are two types of interest rates you can choose from – fixed rate and variable rate. However, you don’t have to choose just one or the other. Many banks and lenders will let you combine the two in what’s known as a split rate home loan.

A split home loan is separated into two different portions – one part fixed rate and another part variable rate. For some borrowers, this method gives you the best of both worlds: the repayment certainty of a fixed rate and the flexibility and features that typically come with a variable rate.

Here, we’ll explain how it works and why you might want to consider it.

How does a split home loan work?

A split home loan involves dividing your home loan into two accounts, one with a fixed rate and one with a variable rate. The size of each portion is up to you, so you can choose to split your home loan 50:50, 60:40, 70:30 and so on.

Let’s look at an example – say you take out a $500,000 loan and, after speaking with your lender, you decide you’re going to split it 60:40. You agree that 60% of it will be on a fixed rate and 40% will be on a variable rate. This means you’ll be charged a fixed rate on $300,000 and a variable rate on the remaining $200,000.

The interest rate on the fixed portion will remain the same for the duration of the term (usually between one and five years), regardless of any changes to the cash rate.

Once the fixed term ends, you will be switched over to a standard variable rate.

As with standard variable rate home loans, the interest rate on the variable portion will fluctuate over time, either in response to moves by the Reserve Bank or out-of-cycle decisions by your lender. This could work out in your favour if rates go down, but your repayments might also increase if rates go up.

Advantages of a split home loan

The advantage of a split home loan is that you’ll essentially be able to hedge your bets. The fixed rate portion won’t be impacted by home loan interest rate rises, while the variable rate portion of your home loan will benefit if rates are cut.

The variable rate part of your home loan should also allow you to make unlimited extra repayments, potentially allowing you to pay off your mortgage faster and even save money on interest.

You might also be able to take advantage of other helpful features that are common among variable rate loans, such as an offset account and unlimited redraws on extra repayments.

While many fixed rate home loans now offer these features, there are usually conditions attached such as annual limits on extra repayments and fees on offset accounts. By having part of your home on a variable rate, you’ll still get to benefit from these perks.

A graphic showing the benefits of split home loans.

Disadvantages of a split home loan

A split home loan can help guard you against interest rate hikes to an extent, but it also means you won’t fully benefit if rates decrease instead.

This is why it’s important to consider the current and future interest rate environment when deciding on a home loan type.

Generally speaking, fixed rates tend to be a good indicator of where interest rates are heading. If they are higher than variable rates, it usually means lenders expect the cash rate to go up in the future. If they are lower than variable rates, the opposite is more likely true.

Does a home loan have to be split 50/50?

No, you can split a home loan however you prefer, whether that’s split evenly between a fixed and variable rate or a different configuration. For example, you might decide to fix 70% of the loan while leaving the remaining 30% variable.

How do I decide if I should split my home loan between fixed and variable rates?

Before making a decision, think carefully about what you want out of your home loan and how that might be achieved by splitting it into fixed and variable rate accounts.

For example, if interest rates look set to increase and you don’t think you’ll have much need for the variable rate features, it might be worth fixing 100% of your loan.

On the other hand, if you’re not too concerned about interest rates going up, or there’s suggestions that interest rates might be cut in the coming months, then a purely variable rate home loan might be the more suitable option. You could also benefit from more variable rate features that could help you save on interest.

All told, a split home loan can be a good option in a tricky economy which has a looming uncertainty around interest rate movements.

As always, it’s a good idea to discuss any questions you have with your bank or lender prior to making any decisions, and if you still have concerns, consider seeking out advice from a professional financial planner.

For information on interest rates and lending trends, head over to our home loan statistics page. If you’re in the market for a home loan, visit our home loan comparison page or browse the selection below to get started.

Home loan comparisons on Mozo - last updated 28 May 2024

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  • Basic Home Loan

    Fixed, Owner Occupier, Principal & Interest, LVR<70%

    interest rate
    comparison rate
    Initial monthly repayment
    6.25% p.a.
    fixed 3 years
    6.20% p.a.

    No upfront or ongoing fees. Free extra repayments and redraw facility. Option to earn Qantas points. Min 30% deposit required. Borrow up to $750,000.

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  • Discount Variable Home Loan

    Owner Occupier, LVR<70%

    interest rate
    comparison rate
    Initial monthly repayment
    5.99% p.a. variable
    6.01% p.a.

    A low rate home loan for owner-occupiers packed with great features including unlimited extra repayments, free online redraw, no application or monthly admin fees. Rate will vary depending on LVR. Winner of a Mozo Experts Choice 2024 Low Cost Home Loan Award^

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  • Discounted Home Value Loan

    Owner Occupier, Principal & Interest, LVR 70-80%

    interest rate
    comparison rate
    Initial monthly repayment
    6.09% p.a. variable
    6.09% p.a.

    Enjoy competitive rates for owner occupiers. Enjoy unlimited free extra repayments. Flexibility to redraw additional payments for free. No ongoing monthly service fee. Settlement fee waived on new borrowings from $50,000 (T&Cs apply).

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Niko Iliakis
Niko Iliakis
Money writer

Niko has three years experience as a finance journalist. He specialises in home loans, business loans and interest rate movements at Mozo.

Jasmine Gearie
Jasmine Gearie
Senior Money Writer

Jasmine joined Mozo from TechRadar Australia, where she covered the telco and NBN sector for over three years. She’s now turned her attention to the world of personal finance, with a special interest and expertise in home loans and savings accounts.

* WARNING: This comparison rate applies only to the example or examples given. Different amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees, and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan. The comparison rate displayed is for a secured loan with monthly principal and interest repayments for $150,000 over 25 years.

** Initial monthly repayment figures are estimates only, based on the advertised rate. You can change the loan amount and term in the input boxes at the top of this table. Rates, fees and charges and therefore the total cost of the loan may vary depending on your loan amount, loan term, and credit history. Actual repayments will depend on your individual circumstances and interest rate changes.

^See information about the Mozo Experts Choice Home Loan Awards

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