How Does a Split Home Loan Work? Flexible Repayment Made Easy

Brisbane’s property market has seen steady price growth and tighter rental yields, putting pressure on both first-home buyers and investors. As homeownership becomes more challenging in a landscape of rising rates and evolving cash rate signals, many borrowers are seeking smarter ways to manage repayments. 

A split home loan offers the perfect balance by pairing a fixed-rate slice for payment certainty with a variable-rate slice to capture any rate cuts. This tailored approach helps current buyers lock in part of their interest costs while still benefiting from potential interest rate drops. 

Let’s explore how a split home loan works and why it might suit your borrowing needs.

Confused how split loan works?

Our Brisbane mortgage brokers simplify the process, crunch the numbers, and negotiate the best split structure for you. Reach Kelly Brothers Finance at (07) 3847 9450 or online at www.kellybrothersfinance.com.au for expert guidance.

What Is a Split Home Loan?

A split home loan divides your total borrowing into two parts with different interest rates. One portion has a fixed interest rate for payment certainty, while the other sits on a variable interest rate so you can benefit from any rate cuts. 

The main aim is to lock in part of your repayments against rises, but still chase savings if rates fall.

How does it differ from a single-rate loan?

A single-rate loan uses only one interest type across the entire balance, either fixed or variable. By contrast, a split loan lets you blend both within the same facility. 

This means you deal with two sets of repayment terms and can customise each to suit your budget and risk appetite.

Who benefits most?

Risk-averse borrowers love knowing a slice of their repayments won’t change, even if the Reserve Bank raises the cash rate. Rate-seekers enjoy the upside on the variable portion when interest rate cuts arrive. A split home loan brings both groups a middle ground: part safety, part opportunity.

How Does a Split Home Loan Work?

Let’s dive into what actually happens when you split your mortgage. You’ll see how your repayments, interest and balances are divided between fixed and variable slices.

With a split home loan, you choose a percentage of your total borrowing to fix and the rest remains variable. Your lender treats each slice as its own mini-loan, applying the fixed interest rate to one portion and the variable rate to the other. 

You simply make two partial repayments each month that together cover your whole balance.

Simple Sample Scenario

• Total loan: $400,000
  
  
• Split ratio: 60% fixed / 40% variable
  
  
• Fixed portion = $240,000 at 4.00% p.a.
  
  
• Variable portion = $160,000 at 6.00% p.a.
  
  
• Term: 30 years
  
  

Sample Computation Breakdown

1. Calculate fixed-slice repayment

• Use your lender’s split loan calculator or general home loans calculator.
  
  
• Approximate result: $1,145 per month on $240,000 at 4%.
  
  

2. Calculate variable-slice repayment

• Again, via calculator or your broker’s tool.
  
  
• Approximate result: $959 per month on $160,000 at 6%.
  
  

3. Combined monthly repayment

• Fixed slice: $1,145
  
  
• Variable slice: $959
  
  
• Total: $2,104
  
  

4. First-month interest vs principal

• Fixed portion
  
  
• Interest = $240,000 × (4% ÷ 12) = $800
  
  
• Principal = $1,145 − $800 = $345
  
  
• New balance ≈ $239,655
  
  
• Variable portion
  
  
• Interest = $160,000 × (6% ÷ 12) = $800
  
  
• Principal = $959 − $800 = $159
  
  
• New balance ≈ $159,841
  
  
• Totals
  
  
• Interest paid month one: $1,600
  
  
• Principal repaid month one: $504
  
  
• Combined new balance: $399,496
  
  

This simple breakdown shows exactly how each slice works and how your overall repayment adds up. 

Don’t let interest rate swings catch you off guard!

Speak with our Brisbane mortgage brokers who specialise in split home loans. We’ll map out fixed and variable slices to protect you from hikes and cuts. Call us at (07) 3847 9450 or head to www.kellybrothersfinance.com.au today.

What are the Pros and Cons of a Split Home Loan?

Here’s a quick look at the upside and downside of a split home loan. Take a moment to weigh each point before you decide if this loan structure fits your goals.

Pros of a Split Home Loan

• Balancing stability with flexibility: A split home loan’s fixed-rate portion locks in your monthly repayments against cash-rate rises, while the variable-rate mortgage slice lets you chase interest rate cuts and benefit from any rate drops.
  
  
• Potential savings when rates fall: The variable interest rate on your split loan decreases in line with RBA cash-rate reductions, speeding up principal and interest repayments and lowering your overall comparison rate.
  
  
• Redraw facilities and offset: Extra repayments into the variable-rate portion sit in your redraw facility or offset account, shrinking daily interest on both loan accounts and helping you build equity faster.
  
  
• Mitigated interest rate fluctuations: Splitting your loan balance limits exposure to sudden rate hikes, giving you a smoother mortgage repayment journey.
  
  
• Customisable loan structure: You pick your split ratio (30/70, 50/50, etc.) and can adjust it at term-end using a split loan calculator or with guidance from your mortgage broker.

Cons of a Split Home Loan

• Combined fees and break costs: You may pay both fixed-rate loan fees and variable-rate fees, plus lock-rate fees or break fees if you exit the fixed slice early.
  
  
• More complexity in budgeting: Juggling two sets of rates and loan accounts means tracking separate comparison rates and repayment amounts, which can be tricky.
  
  
• Forecast risk: Leaning too heavily on a fixed-rate mortgage while expecting interest rate falls could cost you potential savings or leave you stuck with a higher fixed interest rate once your introductory rate ends.
  
  
• Limited flexibility on the fixed slice: Redraw facilities and offset benefits typically only apply to the variable-rate portion, so your fixed-rate loans slice stays rigid until term-end.
  
  
• Lock-in traps: Promotional interest rates can be tempting, but once they expire, you could face a higher fixed interest rate or hefty break costs if you try to refinance.
  
  

Ready to balance rate security with flexibility?

Our Brisbane mortgage brokers at Kelly Brothers Finance will tailor a split home loan that suits your budget and goals. Call us now on (07) 3847 9450 or visit www.kellybrothersfinance.com.au to book your free strategy session.

Frequently Asked Questions (FAQs)

How does a split home loan work?

A split home loan divides your total borrowing into two parts: one at a fixed interest rate and one at a variable rate. You make separate repayments on each portion, locking in part of your cost while still chasing any rate cuts.

Is a split mortgage a good option?

It suits buyers who want payment certainty on one slice and flexibility on the other. Just be ready for two sets of repayments, fees, and comparison rates to track.

What are the benefits of a split loan?

A split home loan gives you payment stability on the fixed portion when interest rates rise, while still letting you benefit from savings on the variable portion whenever rates fall. On top of that, the variable slice typically includes redraw and offset account features, so you can make extra repayments or park your savings there to further reduce your interest charges.

Can you split your mortgage between fixed and variable?

Yes. Most lenders let you choose a split ratio (for example, 40/60 or 50/50) and adjust it at set intervals or term end, subject to any break fees or lock-rate charges.

Conclusion

Whether you’re buying your first home or looking to refinance, a split home loan could be just the ticket to balance your repayments and make the most of rate movements. 

Our mortgage brokers based in North Brisbane, servicing greater Brisbane, are ready to handle every part of your home loan application: from running split loan calculators and comparing lender offers to explaining fees, lock-in terms, redraw limits and offset accounts.

 

And here’s the best bit: your first consultation is free. Give Kelly Brothers Finance a call on (07) 3847 9450 or head to www.kellybrothersfinance.com.au and let’s chat about creating the right split loan for your needs.