Aussies want the best of both worlds when it comes to their mortgage interest rates, according to new research by Finder.
The comparison site recently surveyed 1,000 Australians about how they would structure their home loans if they were to refinance. The data revealed that 1 in 5 (20%) would opt for a 'split mortgage'.
A split mortgage is a loan facility that allows you to divide your mortgage into multiple parts - meaning a portion of the loan could have a fixed interest rate, and the remainder could have a variable interest rate.
By way of an example, let's say you decide to divide a $600,000 home loan with a 60:40 split between a fixed and a variable interest rate. Your home loan is split into two loans - a fixed interest rate is charged against $360,000, and the additional $240,000 would have a variable interest rate.
The beauty of a split rate loan is that it can provide payment certainty, said Craig Betalli, Senior Finance Specialist, Our Broker. "A split loan offers the assurance that should interest rates rise a portion of your loan repayments won't change, but it also provides the flexibility to take advantage of any rate reductions.”
A split loan is also a sensible option if a borrower isn't planning on selling a property soon. "If you have some short-term plans, the fixed-rate component of a split loan can restrict flexibility to make changes to your loan, or there might be break costs if you need to pay out the loan early," Craig explained.
"If you have no short-term property plans, we are recommending that borrowers split their home loans because fixed rates are around 0.5% lower than variable interest rates."
Craig added, "In the current environment, it's unlikely that variable rates will drop down to the same levels as fixed rates for the foreseeable future.”
In fact, fixed-rates are more likely to rise than have any material falls, predicted Craig. "With a split loan strategy, we can reduce the average rate of interest paid by borrowers to around 2.3% with a fixed and variable mix.”
An alternative strategy is to team up with a finance specialist such as Our Broker to find one of the small numbers of lenders offering fixed-rate loans with a mortgage offset account or who accept unlimited additional repayments, Craig suggested.
The Finder research also found that it's the younger generations who place the most value on flexibility when it comes to their home loan. Over a quarter of Gen Z (27%) would split their mortgage – more so than any other generation – while Millennials are the most likely to choose a variable loan (23%).
Baby Boomers were more likely to refinance to a fixed-rate (19%).
To find out more about a split home loan, contact Our Broker on 1800 913 677.