Split Home Loans — Best of Both Worlds

How a Split Home Loan Works

A split home loan divides your mortgage into two or more sub-accounts, each with a different interest rate type. The most common split is between a fixed rate portion and a variable rate portion, though you can also split between different fixed terms (for example, 2-year fixed and 4-year fixed) or between multiple variable products with different features.

Each portion operates independently: the fixed portion has its own balance, rate, and repayment, while the variable portion has its own balance, rate, and repayment with access to features like an offset account. From the lender's perspective, it is a single loan with multiple sub-accounts secured against the same property.

The split ratio is entirely up to you. You might choose a 50/50 split, giving equal weight to certainty and flexibility. A 60/40 or 70/30 fixed-to-variable split prioritises budget certainty while maintaining some flexibility. A 30/70 fixed-to-variable split gives you maximum offset benefit while still protecting a portion of your repayments from rate increases.

Why Borrowers Choose to Split

The fundamental appeal of a split loan is that it addresses the two competing desires most borrowers have: the certainty of knowing what your repayments will be, and the flexibility to manage your loan actively and benefit from rate movements. Rather than making an all-or-nothing choice, splitting lets you balance these priorities.

Hedging against rate movements. Nobody can predict with certainty whether rates will rise or fall over the next 2-5 years. By splitting, you protect yourself from the worst-case scenario in either direction. If rates rise significantly, your fixed portion insulates you from the full impact. If rates fall, your variable portion benefits from the reduction. You may not get the absolute best outcome either way, but you are protected from the worst.

Offset account benefits. A 100% fixed loan does not come with an offset account. If you have significant savings — your emergency fund, savings for future goals, or regular salary deposits — an offset account on the variable portion can save you thousands per year in interest without locking those funds away. The offset benefit on even a smaller variable portion can outweigh the rate difference.

Extra repayment flexibility. Fixed rate loans cap extra repayments at $10,000-$30,000 per year. If you want to make larger additional payments — from a bonus, inheritance, or tax refund — directing them to the variable portion avoids any break cost risk while still accelerating your loan payoff.

Choosing the Right Split Ratio

The ideal split ratio depends on several personal factors. Consider the following framework when deciding how to divide your loan:

Your cash flow buffer. If your budget is tight and rate increases would cause genuine financial stress, a higher fixed portion (60-70%) provides more protection. If you have comfortable headroom in your budget and could absorb higher repayments, a smaller fixed portion gives you more flexibility.

Your offset balance. Calculate the interest savings generated by your typical offset balance against the variable portion. If your offset balance is large relative to the variable portion, the savings can be substantial. Ensure the variable portion is large enough for your offset to have a meaningful impact.

Your extra repayment plans. If you plan to make significant extra repayments, a larger variable portion gives you more room to do so without hitting fixed rate extra repayment caps. If you plan to stick to minimum repayments, a larger fixed portion provides more certainty with no downside.

Your rate outlook. If you believe rates are likely to increase, weighting toward fixed makes sense. If you believe rates are near their peak and may decline, weighting toward variable positions you to benefit from cuts. If you are genuinely uncertain — which is the most honest position — an even split hedges your bets.

Real-World Split Loan Example

Consider a borrower with a $700,000 loan who decides on a 60/40 split. The fixed portion of $420,000 is locked at 5.99% for 3 years, with monthly repayments of approximately $2,516. The variable portion of $280,000 is at 6.29%, with monthly repayments of approximately $1,734. Total monthly repayments are approximately $4,250.

The borrower maintains $60,000 in their offset account against the variable portion. This effectively reduces the variable balance to $220,000 for interest calculation purposes, saving approximately $3,774 per year in interest. Additionally, they direct $1,000 per month in extra repayments to the variable portion, further accelerating principal reduction on that sub-account.

After the 3-year fixed term, the fixed portion reverts to variable. At this point, the borrower can refix a new amount, go fully variable, or set a completely new split ratio. The variable portion, having received both offset savings and extra repayments, has been reduced substantially more than the fixed portion during the same period.