Choosing between fixed and variable is not an all or nothing decision. Most Australian lenders let you split a home loan so that part of the debt is fixed and part is variable. You choose the dollar amount of each split at setup, and you can choose again when the fixed term ends.
A split does not beat the market. If rates rise, a fully fixed loan would have done better. If rates fall, a fully variable loan would have done better. A split narrows the range of outcomes, so your repayments move less in either direction, while keeping flexible features on part of the debt.
How a split home loan works mechanically
When you split a loan, the lender opens separate loan accounts under one loan contract and one security. Borrow $600,000 and split it 50/50, and you have a $300,000 fixed account and a $300,000 variable account. Each account has its own rate, minimum repayment and statement. The property secures the total, so there is still one mortgage on the title.
The fixed account works like any fixed rate home loan. The rate and minimum repayment are locked for the fixed term, commonly one to five years. The variable account works like any variable rate home loan. The lender can change the rate at any time, and your repayment changes with it.
- You choose the split as dollar amounts, and most lenders set a minimum amount for each split.
- Some lenders charge a fee per split or require a package with an annual fee.
- Serviceability is assessed on the total debt, so a split does not change how much you can borrow.
Common split ratios and the logic behind each
There is no correct ratio. The right split depends on how tight your budget is, how much spare cash you expect to hold, and how long you plan to keep the loan. Work backwards from the savings you expect to hold in offset plus the extra repayments you expect to make during the fixed term. The variable split should usually be at least that large.
| Split (fixed / variable) | Logic | Tends to suit |
|---|---|---|
| 50/50 | An even hedge. You are half right whichever way rates move. | No strong view on rates. |
| 60/40 | Leans to certainty, with a large variable balance for offset savings. | Tight budgets still building savings. |
| 70/30 | Most of the repayment is locked. Variable side sized to expected savings. | Near the budget limit, or on one income for a period. |
| 80/20 | Close to fully fixed. The variable split mainly holds the offset. | Certainty seekers with modest savings. |
| 20/80 or 30/70 | Mostly variable, with a small fixed portion as partial insurance. | Large offset balances, or a likely sale. |
Ratios are a convention. Lenders let you nominate any dollar amounts above their minimum split size.
Size the variable split carefully. If you hold $80,000 in offset against a $60,000 variable split, $20,000 of your savings is reducing no interest at all. Investors can also read our guide to fixed vs variable for investment loans before choosing.
Which features sit on which split
The two sides of a split do not have the same features, which is the main practical reason to split. Most lenders attach a full offset account only to the variable account. Some offer an offset on fixed loans, but it is less common and may be partial. Redraw is normally available on the variable side and often restricted on the fixed side.
| Feature | Fixed split | Variable split |
|---|---|---|
| Extra repayments | Usually capped | Usually unlimited |
| Offset account | Often unavailable or partial | Commonly available, often 100% |
| Redraw | Often restricted during the term | Commonly available |
| Early payout or switch | Break costs may apply | Usually only a discharge fee |
Features vary between lenders and products. Check the loan offer for the rules on each account.
Extra repayment caps on the fixed side
Most lenders limit extra repayments into a fixed account. The cap is commonly a dollar amount per year or over the whole fixed term, and some lenders use a percentage of the balance. Pay more than the cap and break costs can apply to the excess. With a split, you send spare cash to the variable account or the offset instead. To choose between those two, see offset vs redraw.
Break costs on the fixed portion
A break cost is a charge for ending or changing a fixed rate before the fixed term finishes. It can apply if you sell, refinance, switch the fixed account to variable, or repay more than the allowed cap. It compensates the lender for its loss when wholesale funding rates have fallen since you fixed. The cost grows with the fixed balance, the time left on the term, and how far rates have fallen.
If rates have risen since you fixed, the break cost is often small or nil, although an administration fee may still apply. If rates have dropped sharply, break costs on a large balance can run to thousands of dollars. The figure depends on rates on the day you break, so ask for an estimate before you sell or refinance.
Worked example: rate rise and rate fall on a $600,000 loan
Take a $600,000 principal and interest loan over 30 years. To keep the comparison clean, assume the fixed and variable rates both start at an illustrative 6.00% a year. Then the variable rate moves by one percentage point soon after settlement, up to 7.00% in one scenario and down to 5.00% in the other. The fixed rate does not change.
| Structure | Start (6.00%) | Variable rises to 7.00% | Variable falls to 5.00% |
|---|---|---|---|
| 100% variable | $3,597 a month | $3,992 a month (up $395) | $3,221 a month (down $376) |
| 100% fixed | $3,597 a month | $3,597 a month (no change) | $3,597 a month (no change) |
| 50/50 split | $3,597 a month | $3,795 a month (up $197) | $3,409 a month (down $188) |
Illustrative rates only, rounded to the nearest dollar. Monthly repayments over 30 years, with the rate change applied to the starting balance.
The 50/50 split is two $300,000 accounts, each costing $1,799 a month at 6.00%. When the variable rate rises to 7.00%, the variable account goes to $1,996 and the fixed account stays at $1,799, a total of $3,795. When it falls to 5.00%, the variable account drops to $1,610, a total of $3,409. Over a year, the rise costs the split borrower about $2,367 extra, against about $4,734 on a fully variable loan.
A 70/30 split moves less again: about $3,716 a month after the rise and $3,484 after the fall. The table leaves out the offset. At an illustrative 6.00%, $40,000 in offset against the variable split saves about $2,400 a year in interest.
Splitting for purpose vs splitting for rate
There are two different reasons to split a loan. Splitting for rate divides one debt between fixed and variable to manage interest rate risk. Splitting for purpose keeps debts with different uses in separate accounts, most often separating investment property borrowing from your home loan or other private debt.
Purpose matters because of tax. Interest is generally only deductible on the part of a loan used to produce income. The Australian Taxation Office says that where one loan account is used for both private and rental purposes, interest has to be apportioned, and repayments cannot be treated as coming off the private part only. Separate splits keep each purpose traceable.
- The two ideas combine. An investment split might be fixed and interest only while the home split is variable with an offset.
- When you release equity to invest, ask for the new funds as a separate split, not an increase to your home loan account.
- Get advice from a registered tax agent or accountant before you structure or restructure investment debt.
Re-splitting at the end of the fixed term, and who a split suits
When the fixed term ends, the fixed account usually rolls to the lender's variable revert rate unless you act. That rate is often higher than the rates offered to new customers. This is the one point where you can change the whole structure with no break costs. Our guide to fixed rate expiry covers the timeline.
- Re-fix the same amount for a new term at the rates on offer at that time.
- Change the ratio by moving part of the expiring fixed balance to variable, or fixing more.
- Make a lump sum repayment into the expiring fixed account before it is re-fixed.
- Go fully variable and ask for a rate review, or compare the cost of refinancing.
A split tends to suit you if
Your budget has limited room for higher repayments, but you also hold savings or expect to make extra repayments. You want an offset account and cannot get one on a fixed loan. You have no firm view on rates and prefer a middle result to a bet either way.
A split may not suit you if
You are likely to sell or refinance within the fixed term, because break costs may apply. Your offset balance already covers most of the loan, which makes fixing of little value. Or split, rate lock and package fees outweigh the benefit on a small balance.
Common mistakes with split home loans
Most problems come from the ratio or the account setup, not the rate.
Making the variable split too small
Borrowers fix 90% of the loan, then build savings larger than the variable balance. The excess does nothing in offset, and extra repayments hit the cap on the fixed account. The flexibility they wanted is gone.
Size the variable split to cover expected offset savings plus planned extra repayments.
Fixing when a sale is likely
Fixing a large portion for five years and then selling in year two can trigger break costs on the fixed account. If rates have fallen since you fixed, the bill can be significant, and it comes out of your sale proceeds.
If a sale is possible, choose a shorter fixed term or a smaller fixed portion.
Mixing investment and private debt
Redrawing from an investment split for a car or holiday, or topping up a home loan account to fund an investment, creates a mixed purpose account. Interest then has to be apportioned, and the records become hard to defend.
Keep one purpose per loan account and get tax advice first.
Letting the fixed split roll to the revert rate
Many borrowers ignore the expiry letter. The fixed account rolls to a revert rate that may be well above what the same lender offers new customers, and it stays there until the borrower asks for a review.
Review your options about three months before the fixed term ends.
