For those unsure about choosing fixed or variable interest rates, split home loans offer the best of both worlds – and that’s exactly why we champion them.
Recent interest rate rises have left many Australians feeling nervous, particularly those who have taken on loans larger than they would have liked as a means to keep up with our nation’s skyrocketing property prices. With inflation and the cost of living also soaring, the Reserve Bank of Australia was finally forced to make a move.
Most economists had expected the RBA to raise rates by 15 basis points at its May meeting, while a few had tipped a 40 basis point rate hike. A handful had even expected it to wait until June for its first move. However, the Reserve Bank caught everyone off-guard by lifting rates by 25 basis points, with multiple increases now expected by the end of the year.
While nobody can predict the future, homeowners have flocked to their lending providers in droves to fix their interest rates – but in the face of such uncertainty, is that really the answer? Instead, it’s worth considering your options linked to split home loans.
Understanding How Split Home Loans Work
When compared to a variable interest rate, or one that fluctuates along with global economies, fixed term interest rates can provide stability, certainty and security. Although they traditionally sit slightly higher than variable options, fixed interest rates provide protection against fluctuating financial markets.
The primary benefit of a fixed rate home loan is that it gives consumers the certainty of knowing that their repayments won’t change over the fixed interest period, which is usually between one and five years. Should the interest rates rise, having a fixed rate loan means no increase in mortgage repayments until the fixed term expires.
However, it’s important to note that loan products with fixed rates rarely feature some of the best benefits of taking on a mortgage, such as access to an offset account or the ability to redraw, as well as limits on making extra repayments – but what if you could have access to the best of both worlds?
In simple terms, split home loans are mortgage products that are ‘split’ into multiple loans with different interest rates. One of the most common examples used in today’s market is a home loan that has a variable interest rate component, with the remaining amount linked to a fixed interest rate.
The fixed rate may allow borrowers to effectively manage the risk of interest rate fluctuations, while still taking advantage of potential rate cuts with the variable portion of their split home loan. While the exact amount you can split up varies between lending providers, generally there’s quite a bit of flexibility as to how much you allocate where i.e. 20% variable, 80% fixed.
Madd Loans founder George Samios has been championing the benefits of split home loans for over a decade, and believes that there’s never been a better time to overhaul the average person’s home loan. Times are rapidly changing, but split home loans offer a conservative form of protection without sacrificing other tools that help your overall financial position.
“While we all know that there are pros and cons linked to both fixed and variable loans, split home loans offer a happy medium that many people don’t even know about. Many of my clients actually have both the offset account and redraw ability that comes with a variable loan, but they also have the security of a fixed loan, which is why we recommend opting for split home loans to get the best of both worlds.”
If your home loan has been ticking along nicely for the last few years and you haven’t had it reviewed in a while, it’s a good idea to make an appointment with your lending institute or mortgage broker. We service our cars regularly, we conduct annual health checks at the doctor, but home loans don’t often get the same type of maintenance.
Banks aren’t generally in the habit of rewarding loyalty with customer care, so if you’re curious if you could potentially benefit from the option of a split loan, it might be time to book a chat with George and the team at Madd.
Partnering With Home Loan Professionals
Navigating the complex world of home loans has long been regarded as stressful, frustrating and time consuming – but if you can find the right advice on sourcing how mortgages work, then the good news is that it doesn’t have to be.
Since their inception in 2012, the team at Madd Loans have worked tirelessly in providing over 2,000 Queenslanders with finance options to help turn their dreams into reality. With the entire brand being built on referrals, owner George Samios takes great pride in making the loan process both fun, educational and stress free – and he has a swag of awards to prove it.
If thinking about your financial future strikes a chord with you, then it might be time to speak to a professional. Whether you’re chasing mortgage solutions or a financial fairy godmother, the team at Madd work together as a collective to turn your goals into reality.