Lenders can offer many features to go with home loans. We often hear of the terms like “offset account” or “redraw”, but there is another great feature you can take advantage of when organising your finances: Loan Splits.
What is a loan split?
A mortgage with a loan split facility is essentially one mortgage divided into a number of accounts. Many lenders can offer multiple splits on one loan, and borrowers can choose to split their loan for a number of reasons.
Why split a home loan?
Get both fixed and variable rates
By fixing a portion of the loan, the portion of repayments stays the same, protecting your interest rate from potential rate rises. However, like normal fixed rate mortgages, break costs may apply if the loan is paid out or refinanced earlier than the fixed term ends.
On the flip side, borrowers can ride the variable wave with the other portion, and see their repayments drop with rate cuts. Plus, most variable rate loans offer unlimited extra repayments, so the borrower can choose to pay off their mortgage quicker.
It’s best to discuss your options with a personal finance manager to determine what’s right for you.
Refinance to structure finances
A single loan can be split to release equity for further purchases or investments. The setup is dependent on the existing loan and borrower’s intention.
One of the most common examples is a home owner seeking to purchase shares for investment.
Are there restrictions?
How splits are divided are entirely up to the borrower. A home owner could have a $240,000 loan split 50/50 between fixed and variable, or choose to split 80/20.
Other loan features, such as offsets accounts or redraw for variable splits, can usually be attached to each split. It is best to check with your lender on what additional features may be available.
Splits can also be arranged between owner occupied and investment rates, so a borrower could have one loan with a 20% portion split for investment purposes.
To find out what low-rate loans may suit you best, contact a Reduce Home Loans Finance Manager on 1300 733 823 or drop us a message!
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