Split home loans in Australia: a practical guide

A split loan is what Australian households reach for when they want two contradictory things: a repayment that cannot jump next month, and a place to park the salary so interest dies a little every day. You fix part of the balance. You leave the rest variable. You are not a trader. You are trying to get through a parental-leave year or a period of overtime that might not last.

This guide covers how splits are documented, how to choose the split point, what happens to offset and extra repayments, and the ways a split becomes four products you no longer understand.

One loan, two contracts inside it

Legally you still have a single mortgage over the property. Operationally the lender runs two (or more) accounts: Fixed Portion A at 5.99 per cent until 12 March 2029; Variable Portion B at the discounted variable, with redraw and offset. Each portion has a repayment. Your direct debit is the sum.

If you underpay because you looked at only one statement, you are in arrears even if the other portion is ahead. Read both.

Choosing the split point

A useful method is to fix the amount whose repayment you must be able to meet on the lower of your two incomes. Leave variable the amount you intend to attack with extra repayments and offset. Example: household can comfortably service $2,400 a month on one wage. That might correspond to a $400,000 fix. The remaining $250,000 stays variable because the second wage, when it exists, will smash it.

What does not work: splitting 50/50 because it sounds fair. Fairness is not a rate.

Features do not clone themselves

Offset almost always sits on the variable side. Extra repayments on the fixed side remain capped; the variable side remains the bucket for lump sums. If you receive a $20,000 bonus and dump it on the fixed portion out of habit, you may trigger break costs or waste the cap. Direct lump sums to the variable portion unless you have a reason not to.

Redraw is similarly portion-specific. Know which account you are redrawing from. Redrawing the variable side to buy a car is still debt; it is just easier than a fresh personal loan — and it puts the car on the house.

Costs and administration

Some lenders charge nothing extra to split. Some limit you to two portions. Some will let you hold three or four, which is how people end up with a 12-month fix, a three-year fix, a variable, and a line of credit they opened in 2019. Complexity has an error rate. Prefer two portions unless you have a documented reason for a third.

Package fees are usually charged once at loan level, not per split. Confirm. Valuation and discharge still happen once. Break costs happen per fixed portion.

When a split is worse than a decision

If the fixed and variable rates are almost identical and you have no offset plans, a split adds statements for no cashflow benefit. If you are six months from a sale, fixing any portion can create a break-cost ambush. If you already struggle to open mail, two rates will not make you a better operator.

A split is also not a substitute for refinancing a badly priced loan. Fixing half of an overpriced mortgage leaves half of the problem on a timer and the other half still overpriced.

Worked example

Loan $720,000. Fix $400,000 for three years at 5.90 per cent; variable $320,000 at 6.05 per cent with 100 per cent offset. Salary of $6,000 a month lands in offset. Average offset $22,000 reduces interest on the variable slice as if that slice were about $298,000. Extra $300 a week goes to the variable principal. The fixed slice just sits there, boring and serviceable on one income. That is a successful split: boring on purpose.

Questions to ask

• Minimum and maximum portion sizes.
• Whether each portion can be refinanced separately — usually no, the whole loan moves.
• Offset eligibility by portion.
• Extra-repayment cap on the fixed slice, annual or over the term.
• How statements are issued and whether internet banking shows a combined picture.

Read variable versus fixed first if you are still choosing a philosophy. Then split only as a way to operationalise that philosophy, not as a third philosophy.

Splits after a relationship change

When one borrower leaves the title, the split you designed for two incomes is scrap. Lenders will reassess the remaining borrower on the whole facility. A 60/40 split does not mean the remaining person only owes 60 per cent. Sort the family-law instructions with a solicitor, then the credit. Do not assume the fixed portion 'belongs' to whoever wanted certainty.

Rate-lock and splits

You can sometimes lock a fixed rate on a portion while the variable portion floats into settlement. Construction-to-split conversions are fiddly: the construction facility is usually variable, and the split is created at conversion. If your plan is 'we'll fix half when the house is done', diary it. Conversion day is noisy and the lock can expire.

Too many portions

A 12-month fix, a two-year fix, a three-year fix and a variable is not sophistication. It is four end dates, four revert risks, and a household who will miss one. Prefer two portions. If you want a ladder, write down why, in a sentence a tired person can still understand in 2029.

A one-page split plan you can actually keep

Write four lines and tape them inside the bill folder: (1) the fixed amount and its end date; (2) the variable amount and the offset BSB; (3) where lump sums go (almost always the variable portion); (4) the extra-repayment cap on the fixed slice. When a bonus lands, you should not have to remember a seminar. You should have to open a page.

If you cannot explain the split to a tired partner in thirty seconds, it is too clever. Simplify before the first missed statement. MoneySmart's mortgage pages will not design your split for you, but they will remind you that a lower monthly figure is not the same as a cheaper loan — especially if one portion is quietly reverting in fourteen months.