What Does It Mean to Split a Mortgage?
Splitting your mortgage means dividing the total loan into two or more portions, each with its own structure. For example, you might fix part of the loan for one year, another part for three years and leave a portion on a floating rate.
Each portion acts like its own mini loan but together they make up your full mortgage. This strategy lets you benefit from different interest rates, manage risk and give yourself more options along the way.
Why Would You Split the Terms?
One of the biggest reasons people split their mortgage is to spread their risk. Interest rates go up and down over time and it’s hard to predict what they’ll do next. Fixing your whole loan for one term might save money if rates drop or cost more if they rise.
By splitting the loan across different terms (like one, two and three years) you avoid having your entire mortgage come up for refix at the same time. This helps soften the impact of future rate changes, especially if interest rates suddenly jump.
Balancing Flexibility and Certainty
Fixed rates offer certainty. You know exactly what your repayments will be for the length of the term. They can also come with break fees if you want to make extra repayments or refinance early.
Floating rates, on the other hand, tend to be higher but more flexible. You can usually make lump-sum repayments or increase your regular payments without penalties.
By splitting your mortgage you can get the best of both worlds. For example:
Fix the majority of your loan for stability
Keep a smaller portion floating for flexibility to make extra repayments
This structure works well if you’re expecting a bonus, inheritance or plan to sell in the near future but still want protection from rising rates on most of your loan.
Making Repayments More Manageable
Another benefit of splitting is that it can help you plan your repayments in stages. If your loan is split into different fixed terms they won’t all expire at once. This means you can refix smaller chunks over time rather than facing one large jump in repayments all at once.
It’s a good way to ease pressure, especially in a rising interest rate environment where sudden jumps in repayments can be a financial shock.
Customising Your Loan to Your Life
Life isn’t one-size-fits-all and neither is a mortgage. Splitting your loan lets you tailor it to suit your personal situation, whether that’s planning for growing your family, changing jobs or renovating in a few years.
For example, if you’re expecting your income to rise or expenses to drop you might structure part of the mortgage to be more flexible now and fix the rest for longer once your cash flow improves.
What Should You Watch Out For?
While splitting has many benefits it does add a bit more complexity to your loan. You’ll need to keep track of when each portion expires and refix them as they come up. Your lender or adviser can help you plan ahead so you don’t miss deadlines.
Also, each portion may have different break fees or terms, so if you want to refinance or restructure later the process can be a bit more involved.
It’s also important to note that if interest rates fall the fixed portions of your mortgage won’t benefit until the term ends so part of your loan may be stuck on a higher rate for a time.
A Smarter Way to Structure Your Home Loan
Splitting your mortgage is a smart way to take more control over your home loan. It spreads out your risk, gives you flexibility and allows you to better plan for life’s ups and downs.
Everyone’s situation is different so it’s worth talking to a mortgage adviser to help tailor the structure to your needs. A well-structured mortgage isn’t just about rates, it’s about making your loan work for you, now and in the years to come.