Split/Fixed/Variable??

[holtk5]

Up until recently i had no idea split loans existed. (Still learning!).. We will be organising our first home loan in Jan/Feb 2008. I was told 'split loans' are the way to go, instead of having one huge loan to pay off, keeping in mind the rising interest rates.

So..considering we will want to invest in property in the future, make extra repayments into our home loan, and have a basic (no frills) loan, what is best?

Thanks
Kate

 

[alexlee]

Up until recently i had no idea split loans existed. (Still learning!).. We will be organising our first home loan in Jan/Feb 2008. I was told 'split loans' are the way to go, instead of having one huge loan to pay off, keeping in mind the rising interest rates.

So..considering we will want to invest in property in the future, make extra repayments into our home loan, and have a basic (no frills) loan, what is best?

Kate, splitting the loan doesn't mean you pay any less. You still borrow the same amount: you just have a few more options such as fixing one part and leaving the other part variable. Having a split loan in itself certainly doesn't decrease your payments compared to a non-split loan. Taking out one $300k loan is no different from taking out a $300k loan split into two $150k accounts. You still pay the same amount of interest.

The key is whether this is PPOR or IP. If it's PPOR, split loans makes the paperwork cleaner because it's easier to track the deductible and non-deductible parts.
Alex

 

[firstmillion]

Up until recently i had no idea split loans existed. (Still learning!).. We will be organising our first home loan in Jan/Feb 2008. I was told 'split loans' are the way to go, instead of having one huge loan to pay off, keeping in mind the rising interest rates.

So..considering we will want to invest in property in the future, make extra repayments into our home loan, and have a basic (no frills) loan, what is best?

Thanks
Kate

For me :

I will look at my financial goals and planning in the medium to long term. Fixed rates have worked for me well so far. As I exactly know the cash flow and not bothered about the interest rates rise. I hv fixed my PPOR for 3 years. After 3 yrs i will look at a variable loan and get an offset account. For the time being fixed rates is the way to go for me.

Good luck with you first property.

Cheers

 

[Peter_Tersteeg]

A split loan might save you money over a variable loan if the rates go up, but if the rates go down, it will probably cost you more money. At the moment rates are trending upwards, but at some point in the future, they will come down - just don't ask me for a date.

The main reason you should consider a fixed loan is so you know what your repayments will be over a period of time. This gives you peace of mind.

The benefit of a variable rate loan is you have more flexibility for extra repayments, redraw, etc. Lots of extra repayments is the best way to save money long term (ie. don't have a loan to pay!)

A split loan is the best of both worlds. Use the variable to make extra repayments, thus reducing the long term cost of the loan. The fixed gives you the certainty of extra repayments in the long term.

Setup costs may or may not be higher, depending on how much you borrow, the lender and the specific loans.

 

[holtk5]

Thanks for all your suggestions, knowledge and advice everyone, i appreciate it!

 

[JustALearner]

Dont mean to hijack the thread, but reading this just brought a question to mind - can split loans have a 100% offset attached to them? If so, are you only able to attach it to the variable part of the loan? I'm assuming you cant have an offset against a fixed rate as that would be asking too much from the poor poor banks? Just a question that came to mind...

 

[Peter_Tersteeg]

If the variable portion can have and offset, then it can be applied to the variable portion of the split loan.

99% of fixed loans can't have an offset, which also applies to the fixed part of the split loan.