Home Loan Splitting Proving Popular
With fixed interest rates at historic lows and variable rates expected to drop in the coming months, more home owners are choosing to split their home loans than ever before, according to leading mortgage broker Loan Market.
In the past four weeks, Loan Market has found that 25 per cent of its enquiries from home owners and buyers wanted to split a portion of their loan between fixed and variable. Compared to the same period one year ago, there was a 75 per cent increase in the number of enquiries for borrowers opting to go the split route.
Loan Market corporate spokesperson Paul Smith said a loan split between fixed and variable portions enabled borrowers to enjoy the benefits of the different product types while minimising the drawbacks.
Mr Smith said that split loans were particularly popular with young buyers getting into the property market. Often these buyers are feeling apprehensive about how to manage their new debt, whilst feeling comfortable in their ability to pay.
“The fixed potion of these loans gives borrowers certainty around their repayments and the variable portion allows flexibility to pay off their home loan quicker whenever their comfortable doing so”, he said.
“With fixed rates at near historic lows and likely not to drop too much further, many customers who would have traditionally gone with variable rates are opting for the fixed route to avoid the fear of missing our when rates eventually go back up.
One such home owner who took out a home loan for $450,000 split their loan in the following way; $400,000 fixed for two years at 4.99% and $50,000 Variable at 5.50% for three years.
The split gives them peace of mind that the bulk of their repayments will be the same for the term of the loan, during which they will only pay the minimum level. The smaller variable portion means they won’t be severely affected by rate movements but do have the ability to pay off their home loan quicker.
Most fixed loans minimise the ability to make additional repayments but with a variable loan split, the borrower can use features like an offset account and has the ability to make extra repayments as they see fit.