The Advantages of Splitting your Home Loan Between Variable and Fixed

With everyone discussing the inevitable interest rate hikes coming sooner than what’s expected, homeowners are now wondering about what they can do to protect their budgets. 

While there may be a few options, one that’s worth exploring is a split rate home loan:

How Cash Rate Hikes Affect Home Loans

If you have a mortgage with a variable rate, a cash interest rise will mean your monthly repayments will also increase.

Why? Because your lender will apply a new margin to your loan every time interest rates go up.

Instead of paying the advertised interest rate, you’ll then pay an extra margin on top of that.

For example, if you had a mortgage with a variable rate of 4% p.a, and the RBA cash rate went up 25 basis points, your loan provider would then add a margin of 0.25% to your loan and you’d be paying 4.25% p.a.

As a result, your repayments would go up by the same amount as the cash rate.

How a Split Rate Loan Works

However, if you have a split rate home loan, your repayments would only go up by the amount that the variable rate rises.

This is because a split rate loan is only linked to the variable rate part of your repayments, which means you’re only paying an interest margin on the variable portion of your repayments.

This can be particularly beneficial if you have a loan with features such as:

  • No offset account
  • No redraw facility
  • No fixed period

So if you have a loan with one of the features above and you ever want to access your money, it may be the case that you may be charged a higher margin on the fixed amount.

Benefits of a Split Rate Home Loan

Better budgeting

Because you’ll only be paying an extra margin on the variable portion of your repayments, it means that your repayments won’t go up as much as when you have a loan with all features.

As a result, you can budget for the inevitable cash rate rises without making sacrifices in other areas of your life.

Security of Your Home

With a split rate loan , your repayments will only go up by the amount of the variable rate.

This means that if the lender increases the fixed rate margin, you can still pay your monthly repayments without being affected by the margin changes.

More Freedom

Because your repayments will only go up by the amount of the variable rate, you have the freedom to pay your loan off more quickly if you choose to do so.

As a result, even if the fixed rate margin increases you can still make extra repayments on the variable portion to reduce your loan faster.

More Value for Money

The reason for this is that if you have a fixed rate home loan with a low margin, you won’t be paying any more interest than you would with a variable rate loan.


While interest rates are expected to keep going up, you can take control of your budget and ensure that your payments will fit your lifestyle and budget.

With a split rate loan, your repayments will only go up as much as the amount the variable portion of your loan increases.

This means that you can budget your repayments and you won’t have to sacrifice your lifestyle and budget just to pay your home loan.

All of the Finance Managers at FinanceCorp are fully qualified, trained and experienced mortgage professionals who live and breathe finance. Contact us today to know more about our services!