Also called combination loans, they combine the advantages of variable and fixed interest rate loans into a single loan.
The key to a split loan is flexibility – you can decide what portion of the mortgage is fixed or variable to suit your needs and the current market conditions.
For example you may opt for keeping 60% of your mortgage on a fixed rate and 40% as variable.
In doing so you can be certain what your repayments will be on the bulk of your mortgage while having the flexibility offered by keeping some of your lending on a variable option.
Splitting your account can provide you with ‘insurance’ against future changes in interest rates. It is important to remember that the fixed portion of the mortgage will be locked in for a set time frame and there may be break costs involved if it is repaid early.
A split loan can be used for investment or owner occupied loans as they are a very versatile product. These mortgages came under close scrutiny a few years back as some investors used this type of account to split their investment and personal loans and in doing so also attempted to claim extra interest on their investment loan.
The strategy involved capitalizing the interest on the investment portion of the loan and claiming the compound interest as a tax deduction. This resulted in a higher deduction than they otherwise would have claimed if the two loans had been set up separately.
As long as you steer clear of this strategy you will have no problem with the Tax Office.
A split loan also allows you to separate or segment different portions of your loan. This can be useful in keeping personal and investment loans separate or even separating different loan amounts for different investments.
For expert advice on split loans, please give us a call so that we can discuss the benefits with you.