Split Loans Explained

Interest rates move in cycles, and whenever the market enters a period of uncertainty, borrowers naturally start looking for ways to balance stability with flexibility. One strategy that consistently reappears in these moments is the split loan.

A split loan isn’t tied to any particular rate environment or year — it’s about responding to the underlying conditions:

✔ rising rates

✔ lender tightening

✔ volatility in fixed vs variable pricing

✔ uncertainty about where the next move lands

If those signs sound familiar, a split loan may be worth considering.

This article breaks down how split loans work, why they become more popular during certain market phases, and provides practical examples to help you decide if it’s right for you.

What Is a Split Loan?

A split loan divides your mortgage into two parts:

1. Fixed Portion

Your interest rate stays the same for a chosen period, giving predictable repayments.

2. Variable Portion

Your rate moves with the market and allows full flexibility — extra repayments, offsets, redraw.

You choose the mix: 70/30, 60/40, 50/50… whatever aligns with your goals and comfort level.

Think of it as insurance on one side, opportunity on the other.

When Split Loans Become Attractive

Split loans aren’t always the best solution — but they shine when certain market dynamics emerge.

Here are the conditions where this strategy becomes particularly useful:

1. When Rates Are Rising or Likely to Rise

If the market shows signs of upward pressure — inflation spikes, hawkish central bank commentary, or lenders quietly lifting rates — fixing part of your loan can soften the blow.

A split gives you:

→ stability on a portion of your repayments

→ breathing room in your budget

→ protection from sharp increases

2. When Fixed Rates Look Competitive Again

In some cycles, fixed rates sit higher than variable. In others, they fall into a sweet spot.

When lenders begin pricing fixed rates aggressively — often signalling expectations of future volatility — a split loan lets you take advantage without fully committing.

3. When Forecasts Are Mixed and No One Agrees

Economists can’t agree. Markets are whipsawing. Banks are sending conflicting signals.

In messy environments like this, a split loan removes the pressure to “pick a winner.”

This is why it’s so popular during transitions between tightening and easing cycles.

4. When You Want Certainty and Flexibility

Some borrowers want repayment stability. Others want the flexibility to repay more aggressively. A split loan means you don’t have to choose.

You can structure it so one part provides peace of mind while the other stays flexible for:

→ offsets

→ extra repayments

→ redraw

→ refinancing opportunities

5. When You Plan to Make Extra Repayments

Fixed loans limit extra contributions. Variable loans don’t.

By splitting your loan, you can channel lump sums — bonuses, overtime, rental income, tax returns — into the variable portion without penalty.

Practical Example 1: A First-Home Buyer Who Wants Stability

Scenario

A first-home buyer wants predictable repayments but doesn't want to lose access to an offset account.

Strategy

→ Fix 60%

→ Keep 40% variable with offset access

Outcome

• Predictable minimum repayments
• Ability to save interest via offset
• Flexibility to make extra repayments on the variable side

A comfortable middle ground for a borrower entering the market for the first time.

Practical Example 2: An Investor Focusing on Cash Flow Management

Scenario

An investor wants the stability of fixed repayments while keeping options open for tax-deductible interest and future refinance.

Strategy

→ Fix 40%

→ Keep 60% variable

Outcome

• Protection from sudden rate rises
• Full offset + extra repayment access
• More control over tax and cash-flow timing

Investors often lean variable-heavy, but a split provides downside protection.

Practical Example 3: A Refinancer Looking to Reduce Risk Exposure

Scenario

A household refinancing a large loan wants certainty without losing flexibility.

Strategy

→ 50/50 split

Outcome

• Half the loan is shielded from future rate hikes
• Half can benefit from future rate drops
• Cash flow remains predictable without full commitment to fixed terms

Great for borrowers recovering from a turbulent rate cycle.

When a Split Loan Might Not Suit You

You may prefer to avoid a split loan if:

→ You want the absolute lowest single rate available

→ You’re planning to sell or refinance soon

→ You need 100% of the loan attached to an offset

→ You prefer total flexibility to repay without limits

In these cases, a fully variable loan may be more appropriate.

How to Choose the Right Split Ratio

A simple guide:

Increase the fixed portion if you value:

✓ predictable repayments

✓ protection from rate rises

✓ stability for family budgeting

Increase the variable portion if you need:

✓ offset access

✓ extra repayment flexibility

✓ the ability to refinance or restructure

✓ exposure to future rate cuts

Most borrowers start around 50/50 or 60/40, but the right mix depends on your income, risk appetite, and long-term plans.

Final Word: Split Loans Are About Balance, Not Prediction

Split loans work best when the market is sending mixed signals — when rates could rise, could fall, or could simply bounce around for a while.

They’re a tool for managing uncertainty, not beating the market.

If you’re weighing up whether a split loan fits your situation, or wondering how to structure the right mix, I’m always here to help run the numbers and model out different scenarios.

Just reach out when you’re ready.