We are in a time where interest rates are rising and have been that way for the past 7 months. However, there is a possibility that the interest rate on our home loans could keep increasing or suddenly start dropping. Additionally, over a quarter of borrowers are facing rate and fee increases, which is due to rising lender costs, inflation and regulations. All this together could be making people feel anxious.
And, knowing that you have plenty of stuff to worry about, the last thing you want to worry about is the increase in mortgage repayment costs that negatively affect you and your family’s lifestyle. So, what can be done about all of this? Well, you could opt for fixed-rate loans. However, they don’t offer flexibility, and opting for a loan with variable rates can also leave you at risk of paying more.
What’s the solution to this? Split loans!
What Are Split Loans?
Split loans are mortgages that are divided into two parts, with each part having its interest rate and repayment schedule. The two parts are typically referred to as the ‘fixed’ and ‘variable’ portions. The fixed portion has a fixed interest rate that does not change over the loan term, while the variable portion has an interest rate that can change over time.
The fixed portion of the loan typically has a higher interest rate than the variable portion. This is because the lender is taking on more risk with the fixed portion, as the interest rate cannot change, which means the lender cannot adjust to changes in the market.
The variable portion of a split loan, on the other hand, can provide the opportunity to take advantage of lower interest rates. Since the interest rate can change over time, the borrower can benefit from any decreases in the rate.
What Are the Benefits of Using a Split Loan?
One of the primary benefits of a split loan is that it allows the borrower to reduce their risk of financial hardship. By splitting the loan between a fixed-rate and variable-rate portion, the borrower can benefit from the stability of the fixed-rate portion while also taking advantage of the potential for lower interest rates with the variable-rate portion. This can help to protect the borrower from any sudden hikes in interest rates.
Another benefit of a split loan is its flexibility. The borrower can adjust the proportion of the fixed or variable rate they see fit. This can be helpful if the borrower’s financial situation changes and they need to adjust their budget accordingly.
Finally, split loans can also help the borrower to save money in the long run. By splitting the loan between a fixed-rate and variable-rate portion, the borrower can benefit from the lower interest rate associated with the variable-rate portion. This can help to reduce the overall cost of the loan over time.
Conclusion
Split loans can be an effective way for borrowers to reduce their risk of financial hardship and save money in the long run. By splitting the loan between a fixed-rate and variable-rate portion, the borrower can benefit from the stability of the fixed-rate portion while also taking advantage of the potential for lower interest rates with the variable-rate portion. Split loans also offer the borrower flexibility, allowing them to adjust the proportion of their loan, which is fixed-rate and variable-rate, as their financial situation changes. So, if those are the benefits you want out of your loan, what are you waiting for? Opt for split loans today!
Wealthy You is an Australian mortgage company that offers a variety of mortgage solutions to meet any financial need. If you are looking for the best home loans in Sydney, check out what we offer.
