Split Home Loans: How to Combine Fixed and Variable Rates in Australia

Choosing between a fixed and variable rate home loan can feel like a coin flip. Lock in and rates fall. Stay variable and rates rise. A split loan sidesteps this dilemma by letting you have both, dividing your mortgage into separate fixed and variable portions.

For many Australian borrowers, this is more than a compromise. Depending on your situation, a split structure can genuinely be the most appropriate loan arrangement.

What Is a Split Home Loan?

A split home loan divides your total borrowing into two (or occasionally more) portions, each with its own rate type.

The most common arrangement is to fix a portion of the loan for a set term, say one to five years, while keeping the remainder on a variable rate. The split can be in any proportion the lender allows. Some borrowers go 50/50. Others fix 70 per cent and leave 30 per cent variable. The right ratio depends on your goals.

Most lenders allow split loans, though some have minimum amounts for each portion, typically $20,000 to $50,000 per split.

Why Would You Split?

The reasons for splitting are practical.

Rate Certainty on Part of Your Loan

If you are anxious about rising rates, fixing part of your loan gives you budget certainty on that portion. Your fixed repayments will not change during the fixed term regardless of what the RBA does with the cash rate.

Flexibility on the Variable Portion

Variable rate loans typically allow unlimited extra repayments and come with offset accounts, features that fixed loans restrict or prohibit. Keeping a variable portion means you retain the ability to make extra repayments, use an offset account and reduce your interest costs more aggressively on that part of the loan.

Hedging Rate Risk

Nobody knows with certainty which way rates will move. A split acknowledges this uncertainty and hedges across both directions. If rates fall, you benefit on the variable portion. If rates rise further, you are protected on the fixed portion.

The Trade-Offs

A split loan is not costless. There are genuine trade-offs to understand.

Fixed Rate Break Costs

If rates fall materially and you want to exit or refinance the fixed portion before the end of the term, break costs can be substantial. Break costs on fixed loans are not a flat fee. They are calculated based on the difference between your fixed rate and current wholesale rates for the remaining term, which means they can be tens of thousands of dollars in a sharply falling rate environment.

Complexity

Managing two portions of a loan requires more attention than a single facility. You will have separate balances and potentially separate offset accounts, though some lenders link an offset to the variable portion.

Not Available on All Products

Split arrangements are not universally available across all lenders and loan products. Some lenders offer them freely, others have restrictions. Your broker can confirm which products allow it.

How to Decide the Right Split Ratio

There is no universal correct split ratio. It depends on:

How much of your repayment you need certainty about for budget planning purposes.

How aggressively you intend to make extra repayments (those go on the variable portion only).

Your assessment of the interest rate outlook, acknowledging that this is inherently uncertain.

The size of any offset balance you hold, since that offsets interest only on the variable portion.

A household with a $200,000 offset balance might structure the split so the variable portion is at least $200,000, ensuring the offset benefit is maximised. A borrower with no offset savings but a strong desire for payment certainty might fix the majority.

Split Loans in a Rising Rate Environment

When rates are rising, the argument for fixing a larger portion is intuitive. Locking in at a known rate protects you from further increases.

However, fixed rates in Australia are priced by lenders using expectations about where rates will be over the fixed term, not just where they are today. This means that by the time the RBA has already raised rates several times, many of the anticipated rises are already priced into fixed rates. The window to lock in genuinely below-market fixed rates often passes before most borrowers act.

This is not an argument against fixing. It is an argument for thinking carefully about timing and for not assuming that fixing is automatically protective just because the environment feels uncertain.

Split Loans in a Falling Rate Environment

When rates are falling or expected to fall, the variable portion benefits as the lender passes on rate cuts. The fixed portion stays at its locked rate, which may become uncompetitive over time.

In this environment, break costs become relevant. If you fix 70 per cent of your loan at a rate that later looks expensive relative to a falling market, the cost of exiting the fixed portion early could negate any rate benefit.

Practical Example

Consider a borrower with a $600,000 home loan. They decide to fix $360,000 at a three-year fixed rate of 5.89 per cent and leave $240,000 on a variable rate of 5.79 per cent.

They maintain a $50,000 offset balance against the variable portion, effectively reducing interest on that part to the equivalent of a $190,000 balance.

Their fixed repayments are stable and predictable. They make an extra $500 per month against the variable balance. After three years, if rates have fallen, they can reassess whether to refix, switch fully to variable, or maintain the split.

Use the Loan Repayment calculator at HomeLoanTools.com.au to compare repayment scenarios under different split structures and rates. Our Compare tool also shows you which lenders currently offer the most competitive split loan products.