A split loan lets you divide your home loan into two or more parts, usually one on a fixed interest rate and one on a variable rate. It’s a way of getting some of the certainty of a fixed rate without giving up all the flexibility of a variable one.
For many borrowers, it’s a middle path when they can’t decide between fixing and staying variable.
How a split loan works
You and your lender agree on how to divide the loan. For example, on an illustrative $600,000 loan, a 50/50 split would mean:
- $300,000 fixed for a set period, often one to five years
- $300,000 variable, which moves with the lender’s rate changes.
Each portion works like its own loan account, with its own interest rate and repayments. You can choose almost any split, such as 70/30 or 40/60, depending on what matters most to you. Some lenders allow more than two portions, for example two fixed portions with different terms.
When the fixed period ends, that portion usually rolls onto the lender’s variable rate unless you choose to fix again.
The fixed portion: certainty
Pros
- Your repayments on this portion stay the same for the fixed period, which makes budgeting easier.
- If rates rise during the fixed period, this part of your loan isn’t affected.
Cons
- If rates fall, you won’t benefit on this portion.
- Many fixed loans limit extra repayments, often to a set amount each year.
- Offset accounts are often not available on fixed portions, or offer reduced benefit.
- If you repay, refinance or sell before the fixed period ends, you may have to pay break costs.
The variable portion: flexibility
Pros
- You can usually make unlimited extra repayments and use a redraw facility.
- An offset account is usually linked to the variable portion, so your savings reduce the interest you pay.
- If rates fall, your repayments on this portion can fall too.
- It’s generally easier to refinance or pay off this part early without break costs.
Cons
- If rates rise, your repayments on this portion go up.
- Repayments can change at short notice, which can make budgeting harder.
Fixed vs variable portions at a glance
| Fixed portion | Variable portion | |
|---|---|---|
| Repayments | Stay the same for the fixed period | Can rise or fall |
| Extra repayments | Often limited | Usually unlimited |
| Offset account | Often not available | Usually available |
| Break costs | Can apply if you exit early | Generally don’t apply |
Features vary between lenders, so always check the details of each portion.
A note from Jenny When clients ask me how to split their loan, I start with their savings habits. If you tend to build up a healthy buffer, a larger variable portion with an offset can make sense. If certainty matters most, a bigger fixed portion may suit you better.
Choosing your split
There’s no single right split. A few questions can help:
- How much certainty do you need? If a rise in repayments would put real pressure on your budget, a larger fixed portion may give you peace of mind.
- How much do you keep in savings? If you hold a steady balance, you may want the variable portion to be at least as big as your expected offset balance, so all of it can work to reduce interest.
- Do you plan to make extra repayments? If you expect bonuses, tax refunds or other lump sums, the variable portion gives you somewhere to put them without limits.
- Might you sell or refinance soon? If so, a larger fixed portion increases the risk of break costs.
Before you commit, it’s sensible to test whether you could still afford your repayments if variable rates rose. Moneysmart suggests testing your budget against a rise of a few percentage points.
You can try different combinations with our split loan calculator. It shows estimated repayments for each portion, though the results are a guide only.
Things to watch
- Fees. Some lenders charge extra for split loans, or treat each portion as a separate account with its own fees.
- Complexity. Two portions mean two rates, two sets of features and, eventually, two decisions when fixed periods end.
- Fixed rate expiry. Diarise when your fixed period ends, so you can review your options rather than simply rolling onto a variable rate that may not be competitive.
- Refinancing later. If you want to switch lenders while part of the loan is still fixed, break costs on that portion may apply. Ask for an estimate before deciding.
A split loan won’t be right for everyone, but for many borrowers it offers a practical balance between peace of mind and flexibility.
This information is general in nature and does not take into account your objectives, financial situation or needs. Lending criteria, terms, fees and charges apply and vary between lenders. Speak with us for advice about your circumstances.
