Split rate home loans
One way to hedge your bets on interest rates is by splitting your home loan rate. Many lenders offer the option to divide your home loan into multiple accounts so you can take advantage of both fixed and variable rates.
Allocating a percentage of your loan to a fixed rate might give you more peace of mind that when variable rates fluctuate, you can still afford monthly payments. At the same time, keeping a proportion of your loan variable gives you the flexibility to benefit from offset or redraw capabilities on that portion of your loan and take advantage of falling rates, if they come up.
Macquarie Bank home loan specialist Richard McHutchison recommends Macquarie’s offset home loan package for borrowers looking to split their rate.
“As long as $20,000 is allocated to a variable rate account, borrowers can divide the rest of their home loan into an unlimited number of loan accounts and take advantage of a mix of rate types.
“One of the benefits of Macquarie’s offset package is that you can link up to 10 offset accounts to each variable loan account.”
“You might want an offset to save for your overseas holiday, or one for school fees. All of your offset accounts work together to reduce the variable rate loan balance you pay interest on, saving you money on interest repayments.”
Considerations
The rate you choose to go with may differ depending on the purpose of the loan.
Fixed rate loans can appeal to property investors who aren’t looking to pay off their loan faster and value the simplicity and predictability of fixed repayments.
First home buyers, with less equity in their home, might prefer a split rate home loan so they can get the best of both options. Borrowers looking to refinance, renovate or sell their property might decide on a variable rate so they can remain flexible when the time comes to make a move.
If you do decide to go with a fixed rate for all or part of your loan, Hall says it’s important to read the fine print on the type of variable rate your loan reverts to at the end of the fixed term.
“Some lenders revert to a standard variable rate, which can be significantly higher than the introductory variable rate they offer to new customers.”
“In the event that property markets fall or credit conditions tighten, it’s not always easy to refinance to a better rate, or a different lender, at the end of a fixed term. It pays to be cautious of introductory rates. If it sounds too good to be true, it probably is.”
A home loan is a long term commitment and your personal circ*mstances are likely to change throughout the course of paying it off. It’s important to revisit the rate you pay at various points to ensure you’re getting a good deal and using your loan features or rate splits effectively.
With Macquarie’s offset package, borrowers can adjust their loan splits by adding a new fixed rate account without incurring extra costs, says McHutchison.
“The offset package allows borrowers one free variation a year. If there’s a good deal on fixed rates, it might make sense for some borrowers to allocate a proportion of their variable funds to a new fixed rate account.”
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To find out more about your home loan options, call us on 13 62 27 to speak to a specialist.
