Benefits of a split loan

Have you heard of a split home loan? Whatever point you are at in your home loan journey, a split loan could be an option. You may be working towards buying your first home, or be part way through your existing loan and want to understand your options - just check that your current terms and conditions allow it. 

We've got the lowdown on what a split loan is and the benefits you might find by taking out a split loan, so you can work out if it's right for you and your lifestyle. 

What is a split loan?

Before we look into split loans specifically, let's talk about the differences between a fixed home loan compared to a variable home loan. 

A fixed home loan means that your interest rate will be locked in for a fixed period of time (at Heritage Bank, you can choose between 1, 2, 3 or 5 years). Your repayments during this time will stay the same, which can be helpful for budgeting and peace of mind. 

Choosing a fixed home loan with Heritage also allows you to make unlimited additional payments, and you have the opportunity for free online redraw of those payments.

Alternatively, interest rates on variable home loans move in line with rising and falling interest rates. This option comes with both risk and reward, as you may see your repayments fluctuate depending on what's happening in the market.

Variable home loans often come with greater flexibility, such as being able to make additional repayments on your loan, open an offset account, and access a redraw facility. 

And then there's a split loan - this gives you the option to have both types of loan by choosing a fixed interest rate for a portion of the loan amount and a variable interest rate for the rest.

How does a split loan work?

If you've decided a split loan is right for you, you can work together with your Home Loan Adviser to determine your fixed vs variable loan split based on current interest rates and your budgeting needs.

Example of a split loan:

You have a home loan of $500,000 and decide to split this amount into fixed and variable rate accounts with a 60:40 ratio. From here, your loan will be divided into two loans. A fixed interest rate will apply on $300,000 for a fixed term, and then the remaining $200,000 will have a variable interest rate applied. 

You can find our current home loan rates here.

Benefits of splitting a home loan with Heritage

More flexibility

You have the option to open an offset account which is a separate transaction account that you can link to your home loan. The money you have in this transaction account offsets the amount of interest you pay on the variable portion of your split loan. 

At Heritage Bank, you will have access to a redraw facility on your variable loan amount, meaning you can withdraw additional payments if you need to.

Security with fixed repayments

Having a portion for your loan secured with a fixed interest rate means that your repayments on that portion won't feel the sting of any rising interest rates. Keep in mind this also means that if interest rates drop, you won't have the flexibility to change your repayment amount until your fixed loan term is up (without paying break costs).

Benefit from interest rate drops

While your fixed loan amount sits securely with a set rate for the duration of its term, your variable portion will move with the market. The good news here is that you can take advantage of interest rate drops with lower repayments on this portion of the loan. This also comes with the added risk of higher repayments if interest rates rise.

Should I split my home loan?

When deciding if you should split your home loan, here are some things to consider:

• What features are important to you in a home loan? Some features to look out for are fixed repayments, flexibility to make additional payments, an offset account or redraw facility. It helps to work out what home loan features are most important to you when deciding if a split loan is right for you, as well as how you'd like to divide your amounts into fixed and variable rate accounts. 
• Your lifestyle and financial circumstances. Your home loan is there to help you live life to the fullest, not hold you back. Think about what the future holds and how this will impact your home loan repayments, like how long you can commit to a fixed loan term.
• Review and understand the fees and charges. When you choose a home loan make sure to check the fees, such as an application fee, any ongoing fees and potential break costs. We have a range of tools and calculators including our mortgage calculators which can help with calculating fees.
• We're here to help. Whether you're wanting to apply for a split loan or just explore your options, a Home Loan Adviser can review your needs and the various split loan options.