What Are the Drawbacks of Split Loans?

Split home loans are a home loan type that allows homeowners to split their existing home loan agreements into various parts that will be classified with variable interest rates or fixed interest rates. There are no restrictions on how a homeowner decides to split their home loan, however, most mortgage brokers limit the number of times a homeowner can split their home loan to two. 

There are a wide variety of benefits and drawbacks that a homeowner can face with split home loans that their mortgage broker should adequately explain before their client makes a decision. 

Drawbacks of Split Home Loans

• The portion of the split home loan that has been classified with a fixed-interest rate can result in a homeowner losing access to potential interest rate drops that can decrease the amount being spent on mortgage repayments
• The potential of being required to pay fees and charges on the various parts of the home loan that have been split
• The potential of being required to pay more on the split home loan variable component when interest rates increase

Benefits of Split Home Loans

• Security against sudden interest-rate increases on split home loans fixed-interest rate portion and allows homeowners to interest rate fluctuation risks
• The potential of obtaining access to a mortgage offset account depends on the individual mortgage broker, which can result in funds being saved in interest
• The flexibility of the variable-interest rate portion of a split home loan that allows homeowners to benefit from interest-rate decreases
• The option to make unlimited additional mortgage repayments without facing penalties, including additional fees or charges
• Homeowners have access to competitive interest rates that the fixed-interest rate portion of the split home loan has the potential of securing

A homeowner who is interested in learning more about split home loans should reach out to their current mortgage broker and use a free online Split Loan Calculator to obtain accurate information.