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What's a split loan? Find out and find split home loans from a wide range of Australian lenders that suit your needs, whether you're investing, refinancing or looking to buy your first home. Compare interest rates, mortgage repayments, fees and more.

Mark Bristow

Personal Finance Editor

Content updated

23 Jun, 2022

Product data updated

27 Apr, 2024

Buying a new home is a big step, whether you're a first home buyer or an experienced investor. It can be especially daunting for first time buyers who haven't yet explored the maze of financial options for buying that dream property.

It's unlikely that you'll ever take out such a large loan for anything other than a home, so it's important to take the time to do some careful and detailed research and compare the range of home loan products that are available. For example, choosing between a home loan with a variable rate or a fixed rate can make a big difference to your household budget.

Another option to consider are split loans, which combines some of the benefits of both variable and fixed interest rates, along with some of the potential drawbacks.

What are split loans?

When you apply for a home loan in Australia, you agree to pay back the money you borrow, plus interest charges.

There are three main ways for interest to be charged on your loan balance:

With a variable rate home loan, the interest you're charged on your home loan may rise or fall, based on changes to the national cash rate and other factors. If your lender increases your variable rate, you could enjoy cheaper monthly repayments, or more easily make extra repayments to help pay off your property faster. But if interest rates rise, so will the cost of your monthly loan repayments, which could affect your budget.
With a fixed rate home loan, you agree to pay a set interest rate for a limited period of time; typically one to five years. During this fixed rate period, your repayments will stay the same, even if variable rates rise or fall, which can make budgeting simpler. While this can help protect you from higher interest charges if variable rates rise, you may also miss out on interest savings if variable rates fall.
A split home loan may be able to help you enjoy the best of both worlds. In this arrangement, interest is charged at a fixed rate on a portion of your loan amount for a limited time, and at a variable rate on the remaining portion of your loan. Split loans let you benefit from some of the security of a fixed rate and some of the flexibility of a variable rate.

Are there rewards and risks with split loans?

Split loans share many benefits and drawbacks with other loan types, and also have their own unique quirks.

For example, you won't be able to easily refinance the fixed portion of the loan during the fixed rate term due to the break costs involved, and if variable rates rise during the term, you may be in for some bill shock once you revert to a variable rate. Also, the revert rate on your fixed portion may not be the same as the variable rate that on your variable portion - you could find that you're paying interest at two different variable rates, unless you choose to refinance and remove the split at this stage.

A split loan may also let you benefit from access to flexible features, such as an offset account or a redraw facility, and the ability to make additional repayments on the variable rate portion, while also benefiting from more consistent repayments from the portion with the fixed interest rate. These features aren't always available with typical fixed home loans, which could make a split loan useful to some borrowers.

Whether you choose a variable, fixed or split rate home loan, it's important to look at more than just the advertised home loan interest rates. Sometimes low rate home loans charge high fees, costing you more overall than some other loans with higher rates and low or no fees. A quick way to estimate the value of different mortgage deals is to look at the comparison rate, which combines the cost of interest and standard fees into a single percentage.

Before applying for a split loan, consider contacting a mortgage broker. These home loan experts can help you work out if a split rate will best suit your financial situation, guide you through comparing lending criteria for a variety of home loan options, and even help you complete the mortgage application process.

Mark Bristow

Personal Finance Editor

Mark Bristow is RateCity's Home & Personal Finances Editor, and an experienced analyst, researcher, and producer. Focused primarily on Australian mortgage and home loan expertise, he has been a journalist and writer in the financial space for over ten years, previously researching and writing commercial real estate at CoreLogic. In the years since, Mark has worked for the Winning Group, Expedia, and has seen articles published at Lifehacker and Business Insider.

This article was reviewed by Personal Finance Editor Alex Ritchie before it was published as part of RateCity's Fact Check process.

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^Words such as "top", "best", "cheapest" or "lowest" are not a recommendation or rating of products. This page compares a range of products from selected providers and not all products or providers are included in the comparison. There is no such thing as a 'one- size-fits-all' financial product. The best loan, credit card, superannuation account or bank account for you might not be the best choice for someone else. Before selecting any financial product you should read the fine print carefully, including the product disclosure statement, target market determination fact sheet or terms and conditions document and obtain professional financial advice on whether a product is right for you and your finances.

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What are split loans?

Are there rewards and risks with split loans?

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What are split loans?

Are there rewards and risks with split loans?

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