Experience the best of both worlds with split rate home loans. Get the benefits of both fixed and variable rates. Split your mortgage in a way that works for you. Keen to know more? Read on and Monzi will break down all the key details, features and considerations. Let’s go.
Please note, certain ideas and products presented in this article may not be offered by Monzi nor the lenders we work with. This article presents only general information. Consider seeking professional financial, taxation, legal or other advice to check how the information and ideas presented on this website relate to your unique circumstances.
Split rate home loans: what are they?
Split rate home loans are a mortgage feature that provides you with the option to divide your loan into two segments. On one segment, you must pay a fixed interest rate. On the other, you’ll pay a variable rate tied to various market forces and indicators.
In short, it’s about allowing you to experience the benefits of both rate-types. You get the security that comes with a fixed rate home loan while also still experiencing the flexibility of a variable rate loan.
Best of all, it’s usually totally up to you how you divide your loan. You can allocate more to the fixed or variable side or simply divide it evenly. It’s your choice.
While that covers the basics, there’s so much more to know. Read on as we investigate all the details to help you determine if split rate home loans are the right choice for you.
How does a split loan work?
When you agree to your mortgage loan and select the option to split your loan, you’ll then have to decide how to allocate your funds. As an example, maybe you decide to pay 70% on a fixed rate and 30% on a variable. Alternatively, you could even split it down the middle.
At that point, you’ll then receive an outline of your repayments and rates. Obviously, you’ll receive two separate interest rates. However, you’ll still only have one repayment. This will simply be divided based on how you split your loan.
Finally, if this is your first home loan, keep in mind that a split rate loan does not remain in place over the full course of your loan. Typically, the fixed period remains in place for one to five years. Once that period has elapsed, your loan simply reverts to a traditional variable form.
While this seems odd, it’s worth understanding that the fixed term exists to provide you with a period of certainty, usually at the beginning of your loan term.
What is a split facility?
One important thing to keep in mind is that split rate home loans aren’t their own unique, mortgage-type. Rather, they are simply a regular home loan with a split facility. In other words, they offer the option to split your rate into a fixed and variable portion. As a result, you can decide whether you wish to split it or just stick to a standard variable rate.
In any case, most home loans will offer the split facility option. If you think this product is right for you, do your research and compare home loan products to determine the one that is most suitable for your needs and circumstances. However, keep in mind that some lenders will not offer this product.
How long is the fixed period?
This will be your decision. As we’ve discussed, with split rate mortgages your loan will be divided into a fixed and variable portion for a defined time period. Once that period has elapsed, it will simply revert to the standard variable form.
In most cases, lenders will offer fixed periods ranging from one to five years. As a result, you will need to determine which option suits you.
Obviously, a five year fixed period provides long-term security and certainty. However, you may miss out on favourable interest rate movements and this security may come at a cost (e.g. additional fees). On the other hand, a short period (e.g. one or two years) may not provide sufficient security.
At the end of the day, you will need to weigh up the pros and cons of each period length to select the one that fits best with your needs and preferences.
How much can I allocate to each rate?
In short, it’s up to you. In most cases, lenders won’t place requirements or restrictions on how you divide your mortgage (within reason). However, fees and charges may vary based on the proportions that you choose.
To make this more clear, if you want to allocate 20% to a fixed rate and 80% to a variable rate then you can. On the other hand, if you want to split it down the middle, 50/50, that’s certainly okay too.
Having said this, consult with your lender to determine if this is possible. While most lenders will be flexible, some may not be. As a result, it will simply come down to the lender’s individual policy.
Finally, generally speaking, the greater and longer the commitment to a fixed rate, the more you will be required to pay as a premium. In other words, security comes at a price.
Fixed, variable or split rate: which is best for me?
In short, Monzi cannot say. The best home loan for you will depend on your unique finance situation. As a result, we are unable to provide any advice as to which one you should pick.
As a guide, a fixed rate is usually best for a borrower who values security. After all, your repayments and rates are locked in for a fixed period.
On the other hand, variable rates provide flexibility and the option to make additional repayments, if you can afford it. Moreover, favourable rate movements can potentially save you money.
Finally, split rates combine fixed and variable rates. You’ll experience some of the benefits of each type but won’t experience the full benefits of either.
Based on this, you will need to determine what you value to decide which is right for you.
Can I access split rate home loans with bad credit?
While there are a number of lenders willing to offer personal loans for bad credit, home loans are a different ball game. After all, the amount you will be borrowing to purchase a home will be significantly greater than the expense you will be covering with a quick cash loan.
Having said this, there may be some options for bad credit borrowers looking to purchase a home. However, approval will likely only be possible if you are able to show that you are now in a secure financial position. After all, lenders will usually be hesitant to lend significant amounts of money to borrowers with a history of missed or late repayments.
What about split rate home loans without a credit check?
Just like bad credit cash loans, it may be possible to access personal loans no credit check. However, when it comes to split rate home loans, a credit check is almost unavoidable.
In assessing home loan applications, lenders will always do their due diligence and will leave no stone unturned. In other words, if they’re going to lend you the money to purchase a home, they want to be absolutely certain that you will have the capacity to repay it.
With this, credit checks are a vital tool that lenders will use to determine your creditworthiness. This information coupled with your financial details will then help lenders determine your outcome.
Can I get a home loan if I’m a Centrelink customer?
If Centrelink benefit payments account for a portion of your income then it may still be possible to access a home loan. Unfortunately, if they make up all of your income then it is unlikely that you will be approved.
This is due to the fact that benefit payments alone simply will not be sufficient to cover your contractual repayments along with your regular, day-to-day expenses. In addition to this, steady employment is a requirement in order to be approved.
Having said this, if you need a personal loan, then Centrelink loans may be offered up to $10,000 by some lenders.
What are the benefits of split rate home loans?
With a split rate, you can potentially experience the benefits of both fixed and variable rates at the same time. With this, benefits may include:
- Certainty and security: on the fixed side, you’ll know exactly what you’re required to pay. In addition to this, a fixed rate can offset any unfavourable fixed rate movements.
- Flexibility: on the variable side, you’ll have the option to make additional repayments to reduce your outstanding balance sooner. Moreover, if rates drop, you’ll be able to experience the benefits.
- Split it your way: you get to decide how to divide your loan. 70/30, 80/20 or 50/50? It doesn’t matter. It’s up to you.
- Split rate loans often come with a number of handy additional features. This can include redraw facilities or offset accounts. However, ensure that these features don’t come at a price.
What are the drawbacks of split rate home loans?
While split rate home loans can be a useful tool, they are not perfect and there are a few drawbacks that you will need to consider.
The most significant comes from the fact that these loans aim to balance the benefits and offset the disadvantages that come with both fixed and variable rates. If this balance is off then you may not experience the advantages of splitting your loan.
In addition to this, other potential drawbacks include:
- If variable rates fall, you won’t receive the full benefit.
- You may be charged additional fees or higher rates if you split your loan.
- You are able to make additional repayments on your variable rate portion but not on the fixed rate side.
What is a split loan calculator?
Keen to know what your loan costs will be? Principal and interest repayment calculators are the tool you need.
In short, these calculators are offered by a range of financial institutions for free online. All you need to do is enter the key features of your split loan (e.g. rates) and from there, you’ll get estimates of your repayments and total loan costs. That way, you can determine how it might work with your budget.
However, keep in mind that all figures provided are simply examples. Use them as a guide only. Your true repayments, rates and costs will vary.
Can I apply for split rate home loans online?
While banks have almost exclusively been the providers of mortgages in the past, times are changing. There are now a host of specialised, mortgage lenders who can make it easy for you to access online home loans.
You can apply and be approved all from the comfort of your own home. Not only that, given that they have no branches, they have lower overheads too. As a result, it may be possible to access more competitive rates too.
In saying this, applying for a mortgage through a bank is still a safe and reasonable option. As a result, our advice would be to keep an open mind. Shop around and compare online lenders and banks to find the mortgage that suits you best. A rate that’s even fractionally lower can potentially save you thousands over the course of your repayment term.
Should I apply for a split rate home loan with a bank or online mortgage lender?
It’s totally up to you.
In today’s day and age, both banks and online lenders are viable options when you’re looking for a home loan. While most banks have a long and trusted history, online lenders offer convenience and flexibility. So, you will have to decide what you value more.
In addition to this, why not compare products? Banks and lenders will vary in the rates, fees and terms of your potential home loan. As a result, you can shop around to potentially find yourself the best deal. It could potentially save you thousands of dollars in the long-run.
Am I eligible for split rate home loans?
In order to be eligible for a home loan, there are a number of financial and credit requirements that you must meet. However, in saying this, exact requirements do vary between lenders meaning it is difficult to provide specific advice.
In any case, in order to determine your suitability for credit, lenders will typically consider:
- Your income
- Current expenses
- Your savings and assets
- Any current outstanding debts or on-going payments
- How much of a deposit can you afford to pay?
- Is there a guarantor on your loan?
What information do I need to provide?
In most cases, when you submit a loan application, you will need to supply information from three categories: identification, proof of income as well as assets and liabilities.
Firstly, identification simply covers proving your identity. As a result, you will usually need to supply documents such as your passport, driver’s licence or birth certificate.
Secondly, you will need to prove that you are earning sufficient income. While you will obviously need to supply recent payslips, you will also need to include details of other income sources too (e.g. share dividends or rent payments).
Finally, assets and liabilities includes any assets that you own (e.g. a car or house) as well as any on-going repayments (e.g. a car loan). These may impact your ability to make repayments and as such will always be considered by lenders.
Do I need a job to get a home loan?
In short, yes.
While some lenders may offer personal loans for unemployed individuals, steady employment is non-negotiable if you would like to take out a home loan. This is the only way that you will be able to consistently make your contractual loan repayments without facing financial hardship. As a result, if you are unemployed then you will be ineligible for a home loan.
Will I receive my home loan on the same day I apply?
In rare circumstances, this may be possible. However, it will typically take banks and lenders up to 7 business days to assess your application. Although, exact processing times will vary based on the nature of your application.
Luckily, if you wish to speed up the process there may be things that you can do. Most crucially, before you apply, make sure that you have organised and can provide all the necessary information that you lender will use to assess your application. This will include financial documents, income statements, identification documents and a host of other details.
Delays will occur if your lender has to chase up information that you failed to provide.
Finally, keep in mind that some loan applications may require a valuation of the property you intend to buy. If this is necessary then accessing loans on the same day will not be possible.
How can I repay my split rate home loan sooner?
We all want to get out of debt sooner. While with a 30 year mortgage it’s unrealistic to believe that you can repay it in 10-15 years, it is possible to at least reduce it by a few months or years.
To do this, there are a few useful strategies that you can employ.
Firstly, switch to fortnightly repayments. While your total monthly costs will remain unchanged, you’ll actually be able to make an additional repayment each year. This is because while there are 12 months in a year, there are 26 fortnights. As a result, you will make the equivalent of one additional payment.
In addition to this, you could potentially open an offset account or make use of redraw facilities. These extra loan features can help you make additional contributions to minimise the interest you pay.
Finally, don’t be afraid to negotiate a better rate. Do your research and compare loans products offered by other lenders. Use this information to state your case. If you lender won’t budge then re-financing could be an option.
What percentage should I pay as a deposit?
In most cases, it is advisable that you pay a home loan deposit of at least 20%. This is because lenders will typically only be willing to lend you 80% of the property value. However, some lenders may be willing to accept deposits of as little as 5%. Although this comes with a condition.
If you pay a deposit of between 5% and 20% then you will be required to pay what’s known as Lender’s Mortgage Insurance. In short, this is an additional charge to cover the risk of a lower deposit.
Alternatively, an additional option could be to find a guarantor for your loan (e.g. your parents). Using their home equity, they may be able to cover the difference meaning you won’t need to pay the additional insurance.
Should I open an offset account?
Mortgages often come with additional features. One such feature is the ability to open an offset account. In short, an offset account offsets your principal loan balance to reduce your interest payment.
To put this into an example, if you’ve got an outstanding balance of $300,000 and $50,000 in your offset account, you’ll only be required to pay interest on the difference of $250,000. Over the course of your loan this can potentially save you thousands.
In addition to this, offset accounts may function like a normal savings account too. You can withdraw or deposit whenever you like. It can be a place to put money away for a rainy day or could become your primary transaction account. It’s up to you.
However, keep in mind that there are often minimum balance requirements. In addition to this, you may face additional charges in the form of fees or higher rates for the privilege of having an offset account.
Offset account or redraw: which is better?
While we’ve already covered offset accounts, a redraw is a little different. In short, a redraw facility allows you to withdraw any additional contributions that you’ve made previously.
In other words, let’s say you make an additional repayment today to reduce your outstanding balance. This will be tracked by your lender in the form of a redraw balance. In the event that you find yourself needing cash, you will be able to withdrawals up to your balance amount.
Whether a redraw facility or offset account is better will be your decision. Weigh up the pros and cons as well as what your preferences are and the associated costs (e.g. fees) to determine which is the right choice for you.
What is the shortest period that I can get a home loan for?
While fast cash loans may have repayment terms of between 12 and 24 months, in most cases you will find it difficult to find a home loan with a term that is shorter than 10 years.
This is understandable given that most home loans tend to range well into the hundreds of thousands of dollars. As a result, repaying a home loan in a period of 10 years or less is simply unrealistic for most borrowers.
In most cases, the average term of a home loan is 30 years. However, it is not uncommon for terms to range from 20 to 40 years. At the end of the day, when you apply, you will have to select the term that works best for you.
Is it better to pay the principal or the interest?
Generally speaking, if you’re looking to make an additional repayment, it should always be put towards your principal balance. This is because interest is charged on this balance. As a result, the lower it is, the less interest that you will pay.
One thing to keep in mind is that while it’s nice to make an additional repayment, never feel any pressure to do so. Your loan is divided into a series of manageable repayments over a fixed period. While it would be nice to repay it sooner, if that’s not possible, then that’s totally fine.
What other costs should I consider?
When it comes to buying a house, a mortgage won’t be your only cost. As a result, you’ll need to ensure that you have enough savings to cover more than just your deposit.
As a guide, additional expenses that you might encounter include:
- Stamp duty
- Purchase of land (i.e. may require land loans)
- Conveyancing and legal fees
- Inspections and valuations
- Maintenance, repairs and renovations
- New furniture
- Moving costs
- Additional mortgage costs (e.g. application fees, mortgage insurance)
- Home insurance
How can I get a better rate on split rate home loans?
Your interest rate should be a major focus when you apply. If you can find the best possible rate then over a 20 or 30 year term, the savings could be immense.
To help you out, there are a few things that you can do that may influence the rate you are offered.
Firstly, the larger your deposit (i.e. the less you borrow) the lower the interest rate that you are offered may be. In addition to this, if you are a borrower with good credit and in a secure financial history then lenders may be willing to offer more competitive rates, given that you are less of a risk.
Having said this however, most lenders will have a standard variable rate that they offer. While these factors may help, ultimately, your lender will determine your interest rate.
Finally, if you have an existing mortgage, then home loan refinancing at a lower rate could allow you to access a better deal. However, you must shop around and consider any fees involved to determine if this will be an option for you.
Who should I approach for help?
A mortgage is the largest financial commitment that you will make in your lifetime. As a result, it’s crucial to ensure that it is the right choice for you. So, do your research and don’t hesitate to seek professional advice.
If you’re not sure where to begin, contact a mortgage broker. They will guide you through each step from comparing different mortgage products to connecting with your bank or lender. Given that they’re experts in the field, they should be able to point you in the right direction. However, ultimately, any decision remains in your hands.
For further details about mortgage brokers and how they might help you, Moneysmart has provided a simple yet comprehensive guide. Check it out.
Split rate home loans and Monzi
In short, through our lender-finder service we can potentially make it simple and convenient to access great lenders online. All it takes is one quick application and from there, we’ll aim to pair you with an available lender ASAP.
Best of all, you can potentially borrow amounts ranging from $300 to $10,000. See the table below for key features and types:
The features of small cash loans include:
- $300 to $2,000
- 12 month repayments
- $2,100 to $4,600
- Repaid over 13 to 24 months
- $5,000 to $10,000
- 13 to 24 month repayments
What can I cover with a personal loan from Monzi?
In short, you can cover almost any personal expense that you encounter. As a guide, some of the most common reasons for applying with Monzi include:
- Car loans, repair costs and servicing
- Household renovations
- New white goods, appliances or technology
- Rental bond
- Holiday loans
- Debt consolidation
Apply for a personal loan today
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