What are split rate home loans? (And why they're not just for indecisive people)
Can't decide between a fixed or variable rate home loan? Good news: you don't have to.
Split rate home loans let you divide your mortgage into two portions—one with a fixed interest rate and one with a variable rate. It's like getting the stability of knowing exactly what a portion of your repayments will be, while still having the flexibility to take advantage of potential rate drops.
And no, you don't need to do a perfect 50/50 split. You can customise the ratio based on your financial situation and risk tolerance. That might look like 70% fixed and 30% variable, or whatever combination works for your financial strategy.
How split rate home loans actually work
Let's break this down with a real-world example:
Say you're buying a $750,000 property with a 20% deposit, leaving you with a $600,000 home loan. You decide to split your loan 60/40:
- Fixed portion: $360,000 (60%) locked in at 4.5% for 3 years
- Variable portion: $240,000 (40%) starting at 4.2%
Your initial monthly repayments would be:
- Fixed: $1,824 per month (won't change for 3 years)
- Variable: $1,173 per month (can fluctuate with market rates)
- Total monthly repayment: $2,997
Now imagine interest rates drop by 0.5% six months later. Your variable rate drops to 3.7%, reducing that portion of your repayment to $1,107 per month. Your new total monthly repayment becomes $2,931—saving you $66 per month.
Conversely, if rates increase by 0.5%, your variable rate would rise to 4.7%, increasing your variable repayment to $1,244 and your total to $3,068.
Either way, the fixed portion acts as a buffer, protecting you from the full impact of rate changes.
7 Key benefits of split rate home loans
1. Risk management on autopilot
A split loan is essentially a risk management strategy. You're hedging your bets against interest rate movements. If rates go up, you've got part of your loan protected. If rates drop, you'll still benefit partially.
2. Budget certainty without FOMO
The fixed portion gives you predictable repayments you can build your budget around. Meanwhile, the variable portion means you won't completely miss out if interest rates fall (unlike a fully fixed loan).
3. Extra repayment flexibility
Most lenders restrict how much extra you can pay off a fixed loan without incurring penalties. With a split loan, you can make unlimited additional repayments on the variable portion, helping you pay down your loan faster.
4. Access to offset account benefits
Many lenders don't offer offset accounts with fixed loans, or they limit their functionality. With a split loan, you can link an offset account to the variable portion and reduce your interest payments while maintaining the security of your fixed portion.
5. Redraw facility access
Need to access funds you've paid ahead? The variable portion of your split loan typically comes with redraw facilities, giving you flexibility if unexpected expenses arise.
6. Customisable to your comfort level
You can tailor the split ratio to your risk tolerance. More risk-averse? Go heavier on the fixed portion. Want more flexibility? Weight it toward the variable side.
7. Interest rate cycle navigation
A split loan can be particularly useful when interest rates are volatile or when it's unclear whether rates will rise or fall in the near future.
Potential drawbacks to consider
No loan structure is perfect. Here's what to watch out for with split loans:
Variable repayment fluctuations
Part of your repayment will still change when interest rates move, making budgeting a bit more complex than with a fully fixed loan.
Fixed rate restrictions still apply
The fixed portion will still carry the typical restrictions of fixed loans, including potential break fees if you need to refinance during the fixed term.
Potentially higher administrative Costs
Some lenders may charge additional fees for managing a split loan or for features like offset accounts.
Not fully benefiting from rate drops
If rates fall significantly, you won't realise the full benefit because part of your loan is locked in at the higher fixed rate.
Who should consider a split rate home loan?
Split loans are particularly well-suited for:
- First-time homebuyers who want some repayment certainty but also flexibility
- Borrowers in uncertain financial situations who need a balance between stability and adaptability
- Investors seeking to optimise tax benefits while managing risk
- Financial moderates who aren't comfortable going all-in on either fixed or variable
- People in transitional life stages who might need loan features like redraw in the near future
How to structure your split loan for maximum benefit
The ideal split ratio depends on your personal circumstances, but here are some common approaches:
1. The balanced approach (50/50 Split)
Equal parts fixed and variable gives you substantial protection against rate rises while still offering decent flexibility and some benefit if rates fall.
2. The security-first approach (70/30 Split)
With more of your loan fixed, this approach prioritises repayment certainty and protection against rate increases.
3. The flexibility-first approach (30/70 Split)
Weighting toward the variable portion maximises your ability to make extra repayments and take advantage of potential rate decreases.
4. The offset maximiser (just enough variable)
Some borrowers calculate exactly how much they'll keep in their offset account and make that amount their variable portion, fixing the rest.
How to set up a split rate home loan
Setting up a split loan is straightforward:
- Assess your financial situation and determine your ideal split ratio
- Shop around for lenders offering competitive rates on both fixed and variable products
- Confirm all features are available (especially offset accounts and redraw facilities)
- Check fee structures to ensure there aren't excessive charges for the split arrangement
- Apply as you would for any home loan, specifying the split structure during your application
Most major lenders and many smaller ones offer split loan options, making them widely accessible.
Refinancing a split loan: What to know
Yes, you can refinance a split loan, but there are some additional considerations:
- Break costs may apply to the fixed portion if you refinance during the fixed term
- Timing is crucial – ideally, refinance after the fixed period ends
- New ratio decisions – you'll need to determine whether to maintain a similar split or adjust based on the current market
An experienced mortgage broker can help navigate the refinancing process to minimise costs and maximise benefits.
What happens when the fixed period ends?
When your fixed term expires, you have several options:
- Fix that portion again at the current fixed rates
- Convert it to variable and have your entire loan on a variable rate
- Create a new split arrangement with different proportions
- Refinance your entire loan to a new lender with better rates
This transition point is an excellent opportunity to reassess your financial situation and goals.
Split loans vs. other loan types
Real talk: Is a split loan right for you?
A split loan isn't for everyone. It's most valuable when:
- Interest rate movements are uncertain
- You want some budget certainty but also flexibility
- You have some extra cash to make additional repayments
- You want to use an offset account but also want rate security
If you're still on the fence, consider starting with a modest split (perhaps 50/50) and adjusting as you become more comfortable with how your loan works.
The bottom line
Split rate home loans offer a "best of both worlds" approach for borrowers who don't want to fully commit to either fixed or variable rates. They provide a customisable balance of security and flexibility that can be adapted to your specific financial situation.
While they require a bit more thought than standard loans, the benefits of risk management, repayment flexibility, and feature access make them worth considering—especially in times of interest rate uncertainty.
