Split Loans Explained
Welcome to the finance update for the week ending 3 June, 2023.
The latest broker market share figures were announced during the week revealing brokers wrote 69.6% of all new residential home loans between January and March 2023, breaking former records for the March quarter that were set in 2022 and 2021. Why are consumers increasingly turning to brokers rather than going direct to lenders? Put simply, mortgage brokers help homebuyers understand their options in what is a crowded and complex mortgage market.
Volumes overall are still down on this time last year, but there are definite signs that the market is turning.
In this week’s newsletter, we look split loans which are a great solution for borrowers looking to lock in some certainty around repayments.
What is a split home loan?
A split home loan allows borrowers to split their home loan into two separate loans: one with a fixed rate and the other variable. It can be an option to consider for borrowers who want a level of certainty for their repayments and budget – via the fixed portion – and some of the flexibility typically offered by a variable loan.
Most lenders offer borrowers the ability to split their loan, but not necessarily on all of their products.
How do split home loans work?
Split home loans generally work similarly to solely fixed or variable loans when it comes to how they are assessed by the lender and, if approved, the day-to-day running of the loan.
As a hypothetical, a borrower might choose to split their loan so that 60% is fixed and 40% is variable. If the balance of the loan is $500,000, in this example the borrower would be charged a fixed rate of interest on $300,000 and a variable rate on the remaining $200,000 of the balance.
The borrower typically makes separate regular repayments on each of the loans, but may be able to arrange for these repayments to be made on the same day to help make budgeting more manageable.
At the end of the fixed term, the fixed portion of the loan is closed and the entire remaining balance will revert to a variable rate.
If one of your clients would like more information about split loans, have them call us on 1330 366 296.
Any changes in interest rates from last week are highlighted in orange.
Note – Increases announced by lenders as a result of RBA decisions normally take 1-2 weeks to come into affect.
The rates below are based on a $500,000 loan, with the borrower making principle and interest payments with a loan term of 30 years. The rates quoted may vary depending on the borrowers LVR.
1 Year Fixed
The rates below are based on a $500,000 loan, with the borrower making principle and interest payments with a loan term of 30 years. The rates quoted may vary depending on the borrowers LVR. At the end of the three year fixed period, the borrowers interest rate will revert to a standard variable rate for the life of the loan.