When deciding on a home loan for your first or next home, several options and factors must be considered. You may want to consider a fixed-rate home loan if you prefer certainty on your repayments or a variable-rate home loan if you want the flexibility to adapt to your financial situation and benefit from market changes. However, choosing one over the other can be a difficult decision.
Split Home Loans
Fortunately, a third option is available where you can split your home loan balance into two separate accounts. This way, you can have the best of both worlds by having one account with a fixed interest rate and another with a variable interest rate. This option allows you to benefit from the features of both types of loans while minimizing the risks associated with each.
Let’s talk about home loans and how splitting your loan can be like having your cake and eating it too. Say you borrowed $500,000 over 30 years but split it into a fixed portion of $300,000 at 3.90% per annum for three years and a variable part of $200,000 at 3.59%. With this setup, your fixed repayments would be $1,415 a month, and your variable repayments would be $908, bringing your total repayments to $2,323 per month.
But what if things change? After six months, your lender raises the variable rate to 3.79% p.a., and suddenly your total repayments go up to $2,345. If you had gone for an all-variable loan, you’d be looking at an extra $57 per month, with repayments going up to $2,327. On the other hand, if the variable rate drops to 3.40% p.a., your split loan would see your total repayments decrease to $2,301, saving you $22 a month.
So, by splitting your loan, you get to have a bit of both world – stability and flexibility – and avoid being at the mercy of the unpredictable mortgage market. Just remember, as with all financial decisions, it’s important to crunch the numbers and find the best option for you.
With a split mortgage, you can have the best of both worlds – the stability of a fixed rate and the flexibility of a variable rate.
Let’s break it down:
The fixed-rate component means you can lock in your interest rate for some time, no matter what the market does. It’s like having a cosy blanket on a chilly night – you can rest easy knowing your repayments won’t change.
But wait, there’s more! The variable rate component means you can take advantage of falling interest rates, potentially saving you thousands of dollars. It’s like having a cool breeze on a hot summer day – refreshing and invigorating!
Of course, there are pros and cons to any mortgage option. With a split mortgage, you might miss out on potential rate drops on the fixed component, but you won’t be caught off guard if rates suddenly rise. It’s like wearing a raincoat on a cloudy day – you might not need it, but it’s better to be prepared.
So, is a split mortgage right for you? It depends on your situation, but it’s worth considering. Do your research and talk to a financial advisor before making big decisions. And hey, if you decide to go for a split mortgage, don’t forget to use our handy calculator to crunch the numbers!
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