20 Sep 2017
Should I ‘Split’ My Loan?
Most people who are shopping around for a home loan or looking to refinance an existing loan will be familiar with terms like ‘fixed interest rate’ and ‘variable interest rate’. Mortgages offering a ‘split facility’ simply gives you a combination of both – you can pay fixed interest on part of your loan and pay variable interest on the rest.
But you might be wondering… with interest rates being low why would I split my mortgage into fixed and variable? To begin with let’s look at some of the pros and cons of both fixed and variable interest loans:
Fixed interest rates offer certainty about repayments, which could make budgeting and planning ahead easier, while also protecting against possible rate rises in the years ahead. On the flip hand, you won’t benefit from a drop in interest rates, there might be limits on making additional loan repayments or no redraw facility.
Interest rates offer the flexibility to take advantage of low rates by making additional repayments to help pay down your mortgage sooner and save on interest. Plus you could benefit from any further interest rate drops. While some of the disadvantages could include making budgeting harder and mortgage stress.
Splitting your loan – part fixed and part variable – is typically viewed as a comfortable compromise between the pros and cons of fixed and variable interest rate loans. A split mortgage allows you to enjoy the benefits of both the security of fixed rate loan and the flexibility of a variable interest rate loan. There’s generally no limit to the way you can split the loan, so you could choose a fixed rate for half the loan and pay variable interest rate on the other half or split your loan 75/25 – the decision is entirely yours.
Whatever loan you decide to go with, it needs to work for you. That means you should do your research and choose a loan with the features, flexibility and fees that are the most appropriate for your financial needs.
Summary
is a split home loan better than a fixed or variable interest rate mortgage? It’s hard to predict if interest rates will go up or down in the future. A split home loan could be the compromise, If they go up, you’re tied into the lower current interest rate. If they go down, you’re in a position to take advantage of those lower rates.
No home loan is risk-proof and everyone’s circumstances are different – but a split home loan might be a way for you to avoid some of the pitfalls of the house-buying market.
Mortgage House
At Mortgage House, we’re no strangers to the homeowner’s journey. It’s a long (but rewarding) one.
But don’t worry, we can help with that.
If you’re thinking of buying a home, you can contact us for advice about the best options for you when it comes to your mortgage. The cost of your mortgage can drastically affect your financial planning, so it pays to speak to the experts about it.