Your regular repayments will vary less when interest rates change, making it easier to budget.
- A split loan enables you to choose part of your loan at a variable interest rate, which will move up or down in line with interest rate movements, and the remainder at a fixed rate, giving you certainty.
- If rates increase significantly, part of your loan and budget is shielded from instability. However, if they drop over time, you will have to pay the fixed rate on your nominated portion.
- You enjoy some of the flexibility of a variable loan along with the certainty of a fixed rate loan.
- If interest rates rise or fall, your regular repayments on the variable portion will too.
- You can repay the variable part of the loan quicker if you wish.
- Only limited additional repayments of the fixed rate portion are allowed.
- You could be penalised financially if you exit the fixed portion of the loan early.
- When interest rates fall, either make your regular repayments on the variable portion to continue to decrease the principle part of your loan or put the difference away to use if there is a rise in interest rates as your regular repayments on the variable portion will also increase.
- If you pay more than the required regular repayment, the extra amount is deducted from the principal. This not only reduces the amount you owe but lowers the amount of interest you repay. Making extra repayments regularly, even small ones, is a great way to pay off your home loan quicker and save on more on interest charges.
- To pay off your home loan quickly – make weekly or fortnightly repayments. This will save you money as you end up making more frequent payments cutting the interest calculated and reducing the life of the loan.