Split Loan Explained: Is It the Right Choice for Your New Home?

A split loan offers the best of both worlds, combining the stability of a fixed-rate loan with the flexibility of a variable rate. It's a popular choice for Newcastle homebuyers looking to balance their loan repayments while protecting themselves from unpredictable market interest rates. 

However, many buyers struggle with choosing the right loan structure, deciding the ideal proportion of fixed and variable portions, and understanding loan features. Mortgage Brokers Newcastle simplifies this process by offering expert financial advice, comparing loan products, and handling the heavy lifting of the loan application. With access to a wide range of lenders, our brokers ensure homebuyers find a loan option tailored to their financial goals. 

Now, let’s explore everything you need to know about split loans and how to achieve your homeownership goals with ease.

What is a Split Loan?

A split loan is a home loan divided into two parts: one with a fixed interest rate and the other with a variable interest rate. This setup allows borrowers to balance the predictability of fixed repayments with the potential savings of variable rate changes. 

Unlike a single-rate home loan, a split loan provides a mix of stability and flexibility, making it a popular choice for homebuyers in Newcastle.

Difference Between Split Loans and Traditional Home Loans

A traditional home loan is either fully fixed or fully variable, limiting borrowers to one repayment structure. Fixed-rate home loans offer stability with set repayments but lack flexibility if market interest rates drop. On the other hand, variable-rate home loans fluctuate with market conditions, which can lower repayments but also increase financial uncertainty.

A split home loan gives borrowers the ability to divide their loans into fixed and variable portions, offering a tailored approach that isn’t possible with traditional loan products.

How Does a Split Home Loan Work?

Let’s take a look at a sample scenario.

Sarah is buying a home in Newcastle and needs a $600,000 home loan. Instead of choosing a fully fixed or variable loan, she opts for a 60/40 split home loan, meaning:

• 60% Fixed-Rate Loan: $360,000 at 6.00% interest for a 3-year fixed-rate period
• 40% Variable-Rate Loan: $240,000 at 5.50% variable interest

Simple Calculation Breakdown

• Fixed Portion Monthly Repayments: $360,000 at 6.00% over 30 years = $2,158 per month
• Variable Portion Monthly Repayments: $240,000 at 5.50% over 30 years = $1,363 per month
• Total Monthly Repayments: $3,521 per month

If interest rates drop, Sarah can make extra repayments on the variable portion without penalty, helping her pay off the loan faster. If rates rise, the fixed portion protects her from sudden increases in loan repayments. 

This balance between stability and flexibility makes a split loan an attractive option for many Newcastle homebuyers.

What are the Benefits of a Split Loan?

A split home loan gives borrowers the best of both worlds by combining fixed and variable rates. This structure offers flexibility while protecting against market fluctuations. Here are six key benefits:

• Rate Stability with Flexibility: The fixed portion locks in a stable interest rate, while the variable portion allows you to take advantage of market rate reductions. This helps balance financial stability and potential savings.
• Potential for Lower Loan Repayments: If variable interest rates decrease, the variable portion of your loan benefits from lower monthly repayments. This can lead to cost savings over the loan term.
• Ability to Make Extra Repayments: Many lenders allow extra repayments on the variable portion without penalty. This helps pay down your loan principal faster and reduces total interest costs.
• Access to Offset and Redraw Facilities: A split loan provides access to features like offset accounts and redraw facilities, which can save thousands of dollars in interest over time. These features offer flexibility in managing cash flow.
• Protection Against Interest Rate Rises: With a fixed portion, part of your loan stays unaffected by sudden market interest rate increases. This provides peace of mind, especially during uncertain economic periods.
• Customisable Loan Structure: You can choose the proportion of loan split between fixed and variable rates to match your financial goals and personal objectives. This allows for a tailored approach based on your individual circumstances.

A split home loan is ideal for Newcastle homebuyers who want both security and flexibility. With the right loan structure, you can manage repayments efficiently while taking advantage of market opportunities.

What Are the Risks of a Split Loan?

While a split home loan offers flexibility and stability, it also comes with some drawbacks. Understanding these risks can help you make informed financial decisions. Here are the key considerations:

• Limited Extra Repayments on Fixed Portion: The fixed portion often has restrictions on extra repayments, meaning you may not be able to pay off your loan faster without incurring break costs. This can limit your flexibility in reducing loan interest rates.
• Break Costs and Exit Fees: If you decide to refinance or change your loan structure during the fixed-rate period, you may face break fees and discharge fees. These costs can add up if you need to adjust your loan early.
• Rate Increases on the Variable Portion: While the variable rate loan portion can benefit from rate reductions, it also exposes you to market interest rate increases. This could result in higher monthly repayments if rates rise.
• Complex Loan Management: Managing a split loan requires tracking two separate portions, each with different loan features, repayment types, and loan rates. This can be confusing compared to a traditional home loan.
• Fewer Loan Refinancing Options: If you want to refinance, the fixed portion may limit your ability to switch lenders or loan products. This reduces the flexibility of adjusting your loan agreement based on better market conditions.

A split loan can be a great option, but it’s important to weigh these risks against the benefits. Speaking with an experienced mortgage broker can help you decide if this loan option aligns with your financial goals.

How to Apply for a Split Home Loan

Applying for a split home loan involves several key steps to ensure you choose the right loan structure for your financial goals. Proper preparation and expert guidance can make the process smoother. Follow these steps to apply successfully:

1. Assess Your Financial Goals

Determine why you need a split home loan and how much of your loan you want in fixed and variable portions. Consider factors like monthly repayments, financial flexibility, and potential extra repayments on the variable portion. 

Tip: Use a split loan calculator to estimate how different rate portions will impact your repayments.

2. Gather Required Documents

Lenders require proof of income, bank statements, tax returns, and credit history to assess your eligibility criteria. Be prepared to submit liability documents, such as details of existing loans, credit card balances, and savings accounts. 

Tip: Organising your paperwork in advance speeds up your loan application process and reduces delays.

3. Compare Loan Products

Not all split-rate loans are the same, so research various loan providers to find one that fits your needs. Compare loan interest rates, comparison rates, fees, and loan features like offset accounts and redraw facilities. 

Tip: Look for a competitive rate that aligns with your loan term to maximise cost savings.

4. Consult an Experienced Mortgage Broker

A licensed mortgage broker can provide independent advice and help you navigate a wide range of loan options. They can also negotiate competitive interest rates and access flexible mortgage options tailored to your financial position. 

Tip: Brokers simplify the process by handling lender communication and ensuring you get the best deal.

5. Submit Your Loan Application

Once you’ve chosen the right loan, complete your loan agreement and submit it to your preferred loan lender. Be ready to pay any applicable application fees or establishment fees during this stage. 

Tip: Double-check your application for errors to avoid processing delays.

6. Wait for Loan Approval

Lenders will assess your loan amounts, credit score, and individual circumstances before approving your loan. This process may take a few days to weeks, depending on the lender and market conditions. 

Tip: Keep in touch with your mortgage broker partner for updates on your approval status.

7. Finalise Your Loan Structure and Settlement

Once approved, review the loan split options and ensure they match your financial decisions. On settlement day, funds are released, and you begin making actual repayments based on your agreed repayment type. 

Tip: Set up online banking to easily track your loan repayments and take advantage of any additional features.

By following these steps, you can smoothly secure a split home loan that aligns with your homeownership goals. If you need guidance, working with an experienced mortgage broker ensures you make informed decisions.

FAQs

What is the best ratio for split loan?

There’s no one-size-fits-all ratio. Most borrowers choose a 50:50 or 70:30 split based on their financial goals and cash flow needs.

How does a split loan work?

A split loan divides your home loan into fixed and variable portions, allowing you to benefit from stable rates and flexible features like redraw facilities.

Are split mortgages good?

Yes, they’re great for balancing risk and flexibility, especially if you want protection against rising rates while taking advantage of rate reductions.

Can you get a split loan?

Yes, with the right eligibility criteria, like a good credit score and proof of income, you can secure a split loan tailored to your needs.

What’s the benefit of a split loan?

It offers the best of both worlds: stability from fixed rates and flexibility with variable rates, helping you save on interest over the loan term.

Do split loans have extra fees?

Some split loans may have establishment fees or monthly loan maintenance fees. Discuss with your broker to find options with minimal costs.

Can I change my split loan ratio later?

Yes, many lenders allow you to adjust the proportion of your loan split, though break fees may apply during a fixed-rate period.

Final Thoughts on Split Loans

A split loan is a smart option for Newcastle homebuyers in 2025, offering both stability and flexibility to manage loan repayments effectively. With the right loan structure, you can balance fixed-rate home loans for predictable costs and variable-rate loans to take advantage of market conditions. 

If you’re considering a split home loan, speaking with an experienced mortgage broker can help you compare loan options and find a competitive rate. Mortgage Brokers Newcastle offers a free consultation to help you choose the right loan product based on your financial goals. Contact them today at Mortgage Brokers Newcastle or call 02 4920 6468 to get started!