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Split Loans Explained

Learn how you can get ahead by taking advantage of the benefits of both fixed and variable rate loans

What is a split home loan?

So, what is a split loan?! In short, a split loan is when you take advantage of both a fixed rate loan and a variable rate loan at the same time by splitting your mortgage into two loans. The advantage of a split loan is that you can pay off one part at a time and save interest in the process. Let’s review the difference between the two.

Fixed interest rate home loans

A fixed interest rate home loan means your interest rate does not change over the term which the loan is set. Fixed rates are great for locking in a lower interest rate to save money; however, you usually only have a limited ability to make extra repayments to reduce the length of your mortgage.

Variable rate home loans

A variable rate home loan is where the interest rate can change throughout the term of the loan. Typically, a variable rate allows you to make adjustments based on any financial and/or personal changes. You can also make additional payments if you have extra funds which will result in lower interest charges against your home loan. If you have been making additional payments, a variable loan gives you the ability to redraw funds which usually can’t be done on a fixed loan.

What does it mean to split a loan?

Splitting your home loan allows you to separate your loan in two and secure a large portion at a fixed interest rate in order to reduce the amount of interest you have to pay. This means you can aggressively pay one portion of your mortgage on a variable rate, whilst fixing the second portion on a lower interest rate. Both fixed and variable homes loans are beneficial and allow you to create the right home loan to suit your needs.

How does a split home loan work?

A split home loan is a way of splitting your mortgage into two. This is usually done to get the best interest rates on each loan, and to avoid high interest payments. Once your home loan balance has been split into two separate accounts, you will need to make repayments into each account accordingly. Typically, one will be set on a fixed rate, and one on a variable rate. By splitting your home loan, you can not only save thousands of dollars in interest, but it can also soften the blow if the fixed portion expires during a period of increasing interest rates.

An example of how your loan could be split

You can choose how you would like to split your loan, however utilising the help of your mortgage broker is always a great idea as they can provide advice on which options will save you money.

Say your loan is $500.000 and you want to split it 60:40, $300.000 could be under a fixed rate, which would mean the other $200.000 would have a variable rate. Which percentage of the loan is fixed and variable is completely up to you! Once set in place, you can make adjustments as rates fluctuate, however you may incur penalty costs for making these changes.

How much of a mortgage can be split?

There is no set rule for the portions in which you can split loans. You may decide to split 50:50, 60:40, 80:20, its completely up to you. We recommend you seek professional advice from a mortgage broker or financial planner who can help you make the best decision in how to split your home loan.

Benefits of a split home loan

Take advantage of falling interest rates

Utilising a split home loan allows you to take advantage of falling interest rates in both halves of your split loan. By setting one portion of your split loan into a fixed low interest rate, and setting the second portion of your split loan as variable, you can save on overpaying interest and drastically pay down your loan both at the same time.

Minimise impact of rising interest rates

Minimise your impact from interest rate hikes by fixing your split home loan whilst rates are low. If you find your variable rate is going to rise, you can always fix that rate too to lock in certainty. Keep in mind that splitting a mortgage means you distribute interest rate movements, as well as the risks involved with each feature.

They can be adjusted to your preferences

The great thing about having a split mortgage into two loans, is they’re adjustable and you can select the portions which your loan is split into. You can also select which portion you’d like to be variable and fixed on a specific rate for a specific length of time. This allows you to better control your finances, save your money from high interest, and dramatically pay off a large portion of your home loan.

Additional home loan features

For the variable portion of your loan, you can take advantage of additional features such as an offset account. When you deposit money into the offset account, these funds will be ‘offset’ against the loan. The result for you is you end up paying less interest and can reduce the life of your loan. An offset account also allows for you to make unlimited additional home loan payments. Some offset accounts come with a redraw option as well, this allows for you to ‘redraw’ money out of the loan in emergency situations.

Is a split loan worth it?

A split loan can provide you financial stress relief as you are able to tailor your home loan to suit and your lifestyle. It allows you to pay off your mortgage whilst helping you to achieve financial stability. By dividing your mortgage into multiple parts, you can benefit not only from the flexibility of a variable rate, but also from the certainty of a fixed rate home loan. You could even choose how much of your loan is split between the fixed and variable rates to work in your favour.


With ever changing interest rates at various banks, discussing your options with a mortgage broker, or financial advisor is a great idea to understand what your options are. Whether you are looking to purchase a home, or already have a mortgage, you can seek professional advice and understand how a split loan can work in your favour. Many people will have never experienced a home loan interest rate hike so its little wonder many people are worried about the impact it could have on their finances. Split loans allow you to have flexibility and security all whilst saving money AND paying off your home loan.