Choosing the right home loan can be difficult, especially with interest rates at an all time low – it is a tough choice between fixing your loan or not.
But there’s a way out – splitting your loan between fixed and variable rates can let you have the cake and eat it too. Don’t believe us? It is possible to have the best of both the worlds – enjoy the current low rates by fixing a portion of your loan and take advantage of the future lows on the remaining portion of the loan.
And what’s more, banks are rewarding savvy customers with better deals – ING Direct, one of the largest banks in Australia, recently reduced the rate on their 3 year fixed loan by a whooping 0.19%, offering an appetizing rate of 3.69% on split loans.
So, what exactly is a split loan?
Embarking on the great Australian dream of buying a house means a lot of financial commitment for a long time. And while the current rates look lucrative, it is always good to have some room to benefit from future lows in the interest rate.
A split loan is a middle path that lets you pay fixed interest rate on a part of the loan and variable rate on the remaining loan. In fact, if you already have a split loan, it is possible to split it further (check if any fee is applicable before making the jump).
Sam decides to borrow $300,000 for his new home. He decides to go for a fixed rate but misses the flexibility of a variable loan. His mortgage broker suggests a split loan that turns out to be the perfect option for Sam. He currently pays a fixed rate on 50% of his home loan, and for the remaining 50%, he pays a variable rate along with an offset account linked to the variable portion of the loan as well as the ability to make additional repayments and redraws at no extra cost with respect to the variable part of the loan. A perfect combo, isn’t it?
Why should you choose a split loan?
Flexibility is the key word when it comes to choosing your home loan and splitting your loan into fixed and flexible components can greatly help in achieving flexibility in finances.
A split home loan allows you to split your home loan into fixed and variable rates in any proportion you like, 50-50, 60-40 or whatever figure fits your vision. So while you pay a fixed amount every month that helps you plan your household budget, you can take advantage of the future borrower friendly interest rates as well.
Key benefits of a splitting your loan:
1. Lesser risk– Splitting your home loan helps you split your risk. While a variable home loan comes with a host of added features, it also brings along an uncertain future. By splitting your loan, you know what you will be paying exactly for some part of the loan and not be affected as much by market fluctuations helping you mitigate the risk to some extent.
2. Save more– Splitting your home loan can help you save much more. Not only you can plan your finances better and cash in on the lower interest rates in the market, lenders are also offering attractive deals and discounts on split loans considering the increasing popularity of these loans in the market.
3. More flexibility– When it comes to finances, flexibility of choosing the features you need is paramount. While fixing a loan lets you plan your finances better, a variable loan can help you choose features that can save you thousands and help you pay your home loan sooner. A split loan lets you combine both these options making it a win-win situation for borrowers.
If you are shopping for home loans, the time is ripe to do a health check up on your home loan and scan the market to refinance your loan, helping you save more. At HashChing, we let you compare broker pre-negotiated deals online, ensuring you get the best deals in the mortgage market. Our expert brokers would be glad to assist with your queries online, absolutely free of cost.
By Vidhu Bajaj