Why Borrowers Use Split Loans

A split loan is essentially a risk management strategy.

By combining both, you reduce exposure to interest rate volatility while still maintaining flexibility.

How a Split Mortgage Works

A split mortgage separates your mortgage into different accounts, each with its own interest rate, repayment schedule and rules.

All you pay back is just the sum of the two parts.

Split Loan Example

Here’s how a $600,000 loan might look split 50/50 between fixed and variable:

Fixed portion: $300,000 at 5.80% p.a. → $1,762/month
Variable portion: $300,000 at 6.10% p.a. → $1,820/month
Combined total: $600,000 → $3,582/month

For comparison, 100% variable at 6.10% = approximately $3,640/month. The split saves around $58/month while giving you rate certainty on half your loan.

Break Costs on the Fixed Portion

If you sell your property or refinance before your fixed term ends, the fixed portion of your split loan may attract break costs.

Break costs are calculated by your lender based on the difference between your contracted fixed rate and current wholesale rates at the time of breaking. They can range from a few hundred to several thousand dollars.

Always request a break cost estimate from your lender before making any changes to your loan structure.

Fixed Rate Component

The fixed part ensures that your interest rate is fixed for a set period, usually:

• 1 year
• 3 years
• 5 years

Main characteristics:

• Fixed repayments remain stable
• Provides certainty for budgeting
• Shields against rising interest rates

But once the fixed term expires, this portion automatically converts to a variable rate unless you refinance.

Variable Rate Section

The variable part tracks market interest rates.

Key characteristics:

• Repayments can go up or down
• Additional payments allowed without penalty
• Can be linked to offset accounts

This part is more flexible but also more sensitive to market changes.

Split Loan Structure Example

Here’s a practical breakdown:

Total loan: $500,000
Length: 30 years
Fixed portion: $300,000 at 5.55% (3 years)
Variable portion: $200,000 at 5.88%

What this means:

• Your repayments are calculated in two different ways
• You get stability on $300,000
• You have flexibility on $200,000

This balance helps to reduce risk and improve financial control.

How Much Can You Save With a Split Loan?

How much you save depends on how interest rates move over time and how flexible you are with the variable portion.

Split loans can help by:

• Allowing extra repayments on the variable side
• Benefiting from future rate cuts
• Reducing exposure to rising interest rates

But savings are not guaranteed — they depend on market conditions and borrower behaviour.

Advantages of Split Rate Home Loan

A split mortgage allows borrowers to balance control and flexibility.

Security with Fixed Rates

The fixed portion protects you from rising interest rates.

Advantages:

• Predictable monthly expenses
• Easier budgeting
• Lower financial uncertainty

This can be especially helpful when interest rates are rising.

Flexibility with Variable Rates

The variable part allows you to react to market changes.

Advantages:

• Potential savings when rates drop
• Ability to make extra repayments
• Better control over loan reduction

Rate Design – Competitive

Splitting your loan can often:

• Secure competitive fixed rates
• Retain flexible variable features

This creates a more customised loan structure.

Unlimited Additional Payments (Variable Part)

Most lenders allow unlimited additional repayments on the variable portion.

What this means:

• Pay off interest faster
• Reduce loan term
• Save money over time

Benefits of an Offset Account

Many split loans allow an offset account on the variable portion.

This helps you:

• Reduce interest charged
• Use savings more effectively
• Improve cash flow efficiency

Drawbacks of a Split Mortgage

Split loans provide flexibility, but they also have limitations.

Missing Out on Rate Drops (Fixed Part)

If interest rates drop, the fixed portion does not benefit.

This means:

• You may pay more than market rates
• Potential opportunity cost if rates fall significantly

Higher Costs If Rates Go Up (Variable Portion)

If rates rise:

• Variable repayments increase
• Monthly cash flow may become tighter

Other Charges

Some lenders may charge:

• Split loan administration fees
• Multiple account-keeping fees

Using Super to Buy Your First Home – FHSS Scheme

The First Home Super Saver (FHSS) Scheme allows eligible first home buyers to save for a deposit inside their superannuation fund and withdraw those contributions – plus earnings – when ready to buy.

Key details:

• Voluntary contributions only (not employer SG contributions)
• Maximum $15,000 per financial year
• Maximum $50,000 total withdrawal
• Contributions taxed at 15% vs your marginal rate – a meaningful saving for most earners
• Apply through the ATO via myGov before signing a purchase contract

FHSS Eligibility

To access the First Home Super Saver Scheme you must:

• Have never previously owned property in Australia
• Be at least 18 years old at the time of requesting a determination
• Have only made voluntary contributions (salary sacrifice or personal after-tax)
• Intend to live in the property for at least 6 months within 12 months of purchase

Apply for an FHSS determination through the ATO’s myGov portal. You must receive the determination before signing your purchase contract.

Break Costs on Fixed Leg

If you exit early:

• Break fees may apply
• Costs can be significant depending on market conditions

How to Apply for a Split Mortgage

A split loan application is similar to a standard home loan application, but with more structuring decisions.

Application steps:

• Review your financial goals
• Choose fixed vs variable split ratio
• Submit a home loan application
• Loan structure approved by lender
• Loan is divided into portions

Important Notice

A split mortgage is not a separate loan but a feature of a single home loan structure.

The split ratio is agreed in advance and written into your loan agreement.

Choosing the Right Split Ratio

There is no universal “best” split — it depends on your risk profile.

Final thoughts

Split mortgages are an effective strategy for borrowers who want to combine the security of fixed rates with the flexibility of variable rates. Properly structured, it can help manage risk, enhance repayment control and provide superior financial flexibility over time.

Here at FS Loan, we assist borrowers in creating split loan strategies that take into account their income stability, interest rate outlook and long-term financial goals.

Call +123 456 7891 or inquire online to speak to an experienced mortgage broker.