What is a split home loan?

A split loan is as simple as dividing your loan into two or more loans for the purpose of having different features on each split, or tracking & separating money used for a specific purpose, like investing or a car purchase.

For example, say you have a loan of $400,000, you could consider splitting the loan with $100,000 kept variable for flexibility and to be able to use an offset account; and the balance of the loan fixed to protect you against interest rate rises.

A simple strategy like this can give you the feeling of security around your repayments whilst at the same time keeping the flexibility of making extra repayments and redraw with the variable portion.

I have even seen this done where a smaller portion is split from the main loan so you can focus on really knocking this portion off quickly – then moving money over into the main split and doing it again – purely for the psychological benefit of watching a smaller balance disappear in a really quick time frame. What I mean by this is making a $10,000 or a $30,000 split and paying this off in 2 or 3 years, rinse and repeat. Of course you could pay the same money into your main loan with the same effect but there is something powerfully motivating about seeing the loan being paid off.

I mentioned above that you could also have a split that was used for a specific purpose, say to purchase a car at home loan interest rates, and you don’t want to pay this portion of the loan for the rest of 30 years when you will only own the car for 5-10 in most cases. This is probably one of only two reasons I would advocate putting a car into your home loan and this strategy works if you focus on paying this split off over the next few years.

Investors also benefit from splitting their loan so interest that can be claimed on an investment property is clear and separate from your home loan interest.

Western Weekender article https://issuu.com/weekenderpenrith/docs/propertyoct7/34