The Benefits of Splitting your Home Loan Between Variable and Fixed

The Benefits of Splitting your Home Loan Between Variable and Fixed

With growing talk of interest rate hikes coming sooner rather than later, homeowners may be wondering what options they have to protect their household budget. One option worth exploring may be to consider a split rate home loan.

Multiple economists and experts have tipped a cash rate hike to come as early as 2022. One economist, John Edwards, is even predicting four rate rises in quick succession in late 2022.

This comes after further speculation from Goldman Sachs, which warned that while other central banks are lifting their interest rates to address the “worst inflation threat since the 1980s”, the Reserve Bank of Australia (RBA) is being “complacent” about global inflation risks.

Without a crystal ball it’s hard for everyday Aussies to know exactly when a cash rate rise may come and potentially hike their mortgage repayments. However, there are some actions you may consider taking now that could put you in a more stable financial position in the event of a rate hike.


How cash rate hikes impact home loans

Firstly, it’s worth exploring how exactly a cash rate hike may influence your monthly repayments so you may know how to better take control ahead of time.

The RBA meets on the first Tuesday of every month (besides January) to discuss monetary policy and set the official cash rate. What homeowners need to know is that it is, among many things, a marker that lenders use to set their home loan interest rates, but also for savings accounts and term deposits. When the cash rate lifts, variable interest rates tend to follow.

The last time the RBA lifted the cash rate was in November 2010, where it rose 25 basis points to 4.75%. With over a decade having passed since this last hike, this means there are over 1.1 million homeowners who have never experienced interest rate increases.

So, if the cash rate were to lift once or even twice in 2022, this may mean your mortgage repayments could go up due to higher interest charges depending on the type of home loan you have. However, this change will only be immediate for variable rate customers.

Fixed rate home loan customers, however, will see their home loan repayments remain at a set price as long as the fixed loan term lasts. But once this fixed period of time ends, a homeowner may find they’re put on a lender’s standard variable rate, which can be a lot higher. You may be able to refinance to a new fixed rate term, but switching lenders may be time consuming and come at a cost, such as break fees if leaving your fixed loan early.

However, if interest rates were to decrease again, being locked into a fixed home loan means you’d miss out on a potential rate cut.

Further, when interest rates are tipped to lift, you may find that fixed home loan rates are higher on average. And many of the competitive features found with home loans are attached to variable rate loans, so choosing a fixed home loan rate may mean less flexibility.

For homeowners who may want the best benefits of variable and fixed rate home loans, it may be worth considering splitting your interest rate.

The benefits of a split rate home loan

As the name suggests, a split rate home loan refers to when a borrower divides their interest rate repayments between fixed and variable rates.

It doesn’t have to be a 50/50 split either. A borrower may be able to decide on splitting a portion of the loan 60% variable and 40% fixed, or even 20% fixed and 80% variable. It’s up to your personal preferences and goals.

If the cash rate were to rise and you had split your interest rates, you may benefit in the following ways:

  1. Partial protection from rate hikes – the portion of your loan that is locked-in at a set rate will not fluctuate, so you know that the impact of a rate hike may be lessened.
  2. Choose your own adventure – as mentioned above, you can choose the division of variable to fixed with your split rate home loan.
  3. Enjoy the same features – you may enjoy the same competitive home loan features, like extra repayments, a redraw facility or an offset account, while also gaining some benefits of a fixed home loan rate.
  4. Enjoy the same offers – if you’re considering refinancing or a first home buyer, splitting may mean enjoying all the perks of a partially fixed rate, plus still gaining any cashback deals associated with the home loan that are typically reserved for variable customers.


At Reduce Home Loans, we not only offer some of the cheapest variable and fixed interest rates on the market, but we offer competitive flexibility to our split rate home loan customers.

We’re currently offering a competitive $2,000 cash back for our fixed Home Owners Dream home loan for eligible customers. Cashback offers are typically reserved for variable rate home loans, so opting for a fixed loan portion of $250,000 or more may mean an extra $2,000 in your back pocket.

You may even consider putting this back into your loan as an additional repayment to help chip away at your loan balance. Reducing your outstanding loan amount is one of the most common ways Aussie homeowners can get ahead of interest rate rises and pay off their mortgage faster.

A split home loan at Reduce Home Loans comes at no extra cost in terms of upfront or ongoing fees. If you choose an optional offset account, one offset account may be applied to each split at $10 per month per offset account requested.

Both new buyers and refinancers may also qualify for a split rate home loan, with the fixed rate period going for 1-5 years. Our fixed interest rates may also go up to 90% LVR

Any of our owner-occupier fixed rates can be split with our Economizer variable home loan (from 1.89%, 1.94% comparison rate) or our Rate Slasher variable home loan (from 2.59%, 2.61% comparison rate).

For investors, any of our fixed rate home loans are able to be split with our Rate Slasher Special variable home loan (2.18%, 2.23% comparison rate).


Whatever your financial situation, to learn more about splitting your home loan rate, or for more advice on how you could save with Reduce Home Loans, please don’t hesitate to call us on 1300 733 823.


Any statement/s are general in nature and do not take into account your financial personal situation, objectives or needs. You should consider whether any statement/s is suitable for you and your personal circumstances. Before making any financial decision, consider your circumstances and the product disclosure statement.

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