In today’s shifting interest rate environment, more Australians are exploring flexible loan structures to manage uncertainty. One option gaining traction is the split home loan — a lending structure that combines both fixed and variable rates in a single mortgage.
But when does a split loan make sense? And what should you weigh up before committing?
This guide walks you through:
- What a split loan is
- Pros and cons of splitting your loan
- Scenarios where split loans can work well
- Key questions to ask before choosing this strategy
Let’s unpack it.
What Is a Split Home Loan?
A split loan allows you to divide your mortgage into two (or more) portions:
- One fixed rate portion: where your interest rate and repayments stay the same for a set term (typically 1–5 years).
- One variable rate portion: where your interest rate can fluctuate based on market conditions or Reserve Bank of Australia (RBA) changes.
The percentage split is flexible — for example, 60/40, 50/50 or 80/20 — depending on your lender and goals.
You still make one loan repayment, but each portion is treated separately in terms of rate structure.
When Does a Split Loan Make Sense?
Here are six common situations where a split loan structure may offer value:
1. When You Want Rate Certainty + Flexibility
A fixed rate portion can protect you from rising rates and offer budgeting certainty. Meanwhile, the variable portion gives you the flexibility to make extra repayments or access redraw facilities — features often not available on fully fixed loans.Example: You’re budgeting for maternity leave and want certainty over part of your repayments, but also want the option to pay down extra when your income is higher.
2. When You’re Unsure Which Way Rates Will Move
If you’re not confident about the future of interest rates, a split loan allows you to hedge your bets — locking in part of your loan while leaving the other part open to benefit from potential rate drops.
A split approach can be seen as a middle ground — reducing exposure to future rate hikes while not completely missing out on possible savings if rates fall.
3. When You Want to Pay Off Debt Faster
Variable loans usually allow unlimited extra repayments and offset accounts, which can help reduce interest over time. By allocating a portion of your loan to variable, you maintain this flexibility.
Great for borrowers who plan to make lump-sum payments from bonuses, tax returns or business income.
4. When You’re Self-Employed or Have Irregular Income
A split loan can help smooth cash flow. You’ll have the predictability of fixed repayments on one side, while still being able to use flexible features like redraw or offset on the variable side when your income fluctuates.
Self-employed borrowers may find this balance helpful during low-income months.
5. When You’re Building or Renovating
If you’re financing construction or a major renovation, you may prefer a variable portion during the build phase (to allow progress payments), then fix the rest once construction is complete.
Some borrowers split loans to time their fixed rate to when the property is finished and valued.
6. When You’re Structuring a Portfolio
Property investors often split loans across properties or within a loan to separate tax-deductible debt and personal debt. A split loan can support this, especially if managing both investment and owner-occupied borrowings.
Benefits of a Split Loan
Here’s what makes split loans attractive for some borrowers:
| Benefit | Why It Matters |
| Budget certainty (fixed portion) | Know what part of your repayments will be for a set term |
| Repayment flexibility (variable) | Make extra repayments or use redraw/offets without penalty |
| Risk management | Reduces reliance on rate predictions |
| Customisable structure | You choose the ratio that suits your situation |
| Interest savings potential | If rates drop, you can benefit on the variable side |
Things to Watch Out For
Split loans aren’t right for everyone. Here are a few potential drawbacks to consider:
| Limitation | What It Means |
| Break fees on fixed portion | Costly if you need to exit early or refinance mid-term |
| Less flexibility on fixed side | No extra repayments or redraw unless allowed in your terms |
| Complexity | Managing two loan types requires clarity and understanding |
| Offset account may only apply to one part | Often linked to variable portion only |
Important: Always read the product disclosure and check with your broker or lender to understand how features like offsets or redraws apply to each portion.
Key Questions to Ask Before Choosing a Split Loan
- What percentage split is right for me — and why?
Think about your income, goals, and risk tolerance. - Can I make extra repayments on both portions?
Not all fixed loans allow this — check the fine print. - Are there break costs if I refinance early?
Especially important if you plan to move or restructure soon. - Can I access an offset account — and on which portion?
- How will changes in rates affect each portion?
Run the numbers with a mortgage broker to understand different outcomes.
How Lenders Assess Split Loans
Most major Australian lenders offer split loan options, but eligibility can vary — especially for:
- Self-employed borrowers
- Low deposit loans (e.g. <20% deposit)
- First home buyers using government schemes
Lenders will look at:
- Your income type (PAYG, self-employed, casual)
- Credit history
- Loan-to-value ratio (LVR)
- Overall repayment capacity
Good to Know: Choosing a split loan structure doesn’t usually affect your ability to access government incentives or first home buyer schemes — but always confirm with a licensed broker.
Is a Split Loan Right for Me?
Split loans offer a useful blend of security and flexibility, especially if you’re:
- Wanting to reduce rate risk but not lose repayment options
- Budgeting for life changes or irregular income
- Building a long-term investment portfolio
They do add some complexity, so it’s essential to weigh the pros and cons carefully. A conversation with a qualified broker can help you decide whether a split loan structure aligns with your long-term goals and current circumstances.
Recap: When Does a Split Loan Make Sense?
✔ You want budgeting certainty and repayment flexibility
✔ You’re navigating rate uncertainty
✔ You plan to make extra repayments
✔ You’re self-employed or have variable income
✔ You want to structure loans for tax or investment reasons
Find out if this strategy suits your needs.
Chat with us to see what might work for you — we’ll walk through your options clearly and help you understand what’s possible based on your goals.
