How much of your home loan should you split?
A split home loan places portions of your debt under different loan arrangements, commonly one fixed and one variable. It can combine some rate certainty with flexibility on the variable portion. Choose the allocation by testing how much cash you may offset or repay and how much changing repayments your budget can handle. Each portion has its own conditions, so compare the combined cost and administration before choosing a ratio.
By Ratey · General information for Australian borrowers.
Example: a planned expense changes the useful split
A borrower has $90,000 cash but expects to spend $50,000 on a renovation soon. Comparing splits using a permanent $90,000 offset would overstate future savings. Their worksheet uses $90,000 before the payment and $40,000 afterwards, with timing shown explicitly.
They also test a delayed renovation and a larger final invoice. The purpose is to see how each allocation behaves as cash changes. The calculation cannot choose the right ratio without the borrower’s actual budget, product terms and tolerance for changing payments.
Give each portion a clear purpose
Start with total debt and draw two loan portions whose balances add to that total. For each, record its rate, remaining term, repayment type, scheduled payment, fees and permitted extra payments. A split is not automatically a 50/50 arrangement.
ANZ describes a fixed-variable split with a chosen allocation and different features on the portions. Moneysmart also highlights the need to check fees and conditions for each part. Ask for your proposed arrangement in writing so the overall repayment and cost are visible.
Size the flexible portion against likely cash
List current savings, known large expenses and realistic extra money you expect during the fixed period. Use both a conservative balance and a higher balance. If offset is available only on the variable portion, its size determines how much of that cash can reduce interest there in the simple 100% model.
For example, $80,000 of eligible offset cash against a $60,000 variable portion can reduce that portion’s interest-bearing amount only to zero. The remaining $20,000 does not automatically reduce interest on the fixed portion. Confirm any other options and restrictions with the lender before choosing the allocation.
Compare two allocations on the same debt
Consider a hypothetical $600,000 loan with $100,000 of qualifying offset savings. With $450,000 fixed and $150,000 variable, the variable interest-bearing amount starts at $50,000. With $540,000 fixed and $60,000 variable, it starts at zero but only $60,000 of the cash is used in that offset calculation.
This does not prove the larger variable portion is cheaper overall. The two rates, fees and changing balances still matter. It shows the capacity difference that a percentage label can hide. Use dollar amounts beside every ratio.
| Allocation | Variable balance | Offset used in simple model |
|---|---|---|
| 75% fixed / 25% variable | $150,000 | $100,000 |
| 90% fixed / 10% variable | $60,000 | $60,000 |
Test payments and extra contributions
Calculate repayments for each portion separately, then add them. Test higher variable rates on the variable portion while keeping the fixed rate unchanged for its agreed period. After the fixed period, use a separate scenario for that portion too.
Keep offset balances and extra principal payments distinct in the plan. Cash deposited to offset remains cash; money paid off the loan reduces debt. If you plan a large extra payment, ask which portion can accept it and whether a limit or charge applies. Do not assume the lender will allocate it to your preferred portion automatically.
Plan for two accounts and a fixed expiry
Ask whether each portion needs a separate direct debit, which account offsets which portion and what happens when the fixed period ends. Put the end date beside the fixed balance in your notes. Check any cost of changing the split later.
If you refinance before expiry, request the fixed portion’s break-cost quote as well as all other switching costs. A good-looking variable offer does not by itself tell you whether replacing the entire arrangement is worthwhile. Compare the combined loan over the period you expect to keep it.
Your next-step checklist
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Common questions
Is 50/50 the safest split?
There is no universal best percentage. It fixes half the balance but may not fit the cash you expect to offset or the repayments you can manage.
Does my offset reduce both portions?
Only according to the product’s linking rules. Ask which portion receives the benefit and never subtract the same cash twice.
Can I change the ratio later?
Ask the lender about its process, eligibility and costs. Changing a fixed portion before expiry may involve charges, so obtain the details before committing.
Sources and assumptions
These primary sources support the explanations above. Examples use invented figures to show the calculation or decision; they are not available loan offers. Check your lender’s terms for your circumstances.
Calculations are estimates and do not establish borrowing eligibility. Read the calculation methodology.
Compare the value of the offset portion
Test whether its rate and fees are covered by the balance you expect to keep.