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Written by atif » Updated on: July 13th, 2025
Many Australians are reconsidering how they handle their house loans in light of the Reserve Bank of Australia's (RBA) May 2025 reduction in the cash rate to 3.85%. A split home loan could be something to think about if you're not sure whether to go with a fixed or variable loan.
What is a Split Home Loan?
A split home loan separates one's home loan into two or more parts, each with its own unique interest arrangement. One part is usually fixed to a fixed interest, while the other is fixed to a variable one, which varies with the market and can potentially save money if rates fall.
Such a structure offers borrowers stability and flexibility equally. For example, if someone wants to pay monthly payments consistently and yet wants to benefit from possible interest rate decreases, this specific kind of loan suits their situation. Websites like empower money offer people the chance to view how varying structures of loans might affect their repayments and lending ability, thus allowing them to make the correct choices in accordance with their finance needs.
You can choose different split ratios depending on your financial goals. Online tools like from Empower Money can help you understand your repayment obligations and whether a split might improve your cash flow. Let’s say you borrow $600,000 and decide to split it 50:50:
Portion
Loan Amount
Interest Type
Rate (Example May 2025)
Benefit
Fixed
$300,000
Fixed
5.75%
Certainty in repayments
Variable
$300,000
Variable
6.42%
Current Economic Climate in Australia
Recent RBA Interest Rate Cuts
In May 2025, the RBA lowered the cash rate to 3.85%. This decision was made to stimulate borrowing and investment. It's the first rate cut in over a year.
Many lenders have followed with reduced variable interest rates. However, fixed rates remain steady or have slightly increased due to long-term market forecasts.
Homeowners with existing fixed loans won’t see immediate benefits from the rate cut. Those with variable loans are likely to enjoy lower repayments. Borrowers considering new loans or refinancing are now exploring split options to balance the current market conditions.
Split home loans are particularly relevant now, offering borrowers a way to lock in part of their debt while still taking advantage of falling rates.
Feature
Fixed Loan
Variable Loan
Split Loan
Interest Rate Stability
High
Low
Medium
Access to Features
Limited
High
Depends on split ratio
Repayment Predictability
High
Low
Medium
Benefit from Rate Drops
No
Yes
Partial
Risk Exposure
Low
High
Balanced
For many Australian borrowers, a split house loan provides a sensible compromise in the current economic climate. It may not be the best option for everyone, but if you want the freedom of variable rates combined with the security of fixed rates, it can be a wise choice. Services such as Empower Money offer resources and assistance to assist you in weighing your alternatives and determining what is practical given your circumstances.
Pros and Cons of Split Home Loans
Advantages
• Rate Protection: You won’t feel the full impact if rates rise, thanks to the fixed portion.
• Potential Savings: If rates fall, the variable part of your loan could cost less.
• Budgeting Help: Predictable repayments on the fixed portion make it easier to plan.
• Loan Features: The variable part usually comes with redraw or offset account access.
• Flexibility with Structure: You can fine-tune the split ratio based on your income stability or financial goals.
Disadvantages
• Complexity: Managing two types of loans means more admin.
• Limited Flexibility: The fixed part may have restrictions on extra repayments or early exit.
• Split Ratio Risks: Choose the wrong ratio, and you might miss savings or pay more.
• Additional Fees: Some lenders charge setup or maintenance fees for managing split loans.
Ask yourself these questions:
1. How important is repayment certainty to you?
2. Do you expect rates to drop further or rise again?
3. Can you handle repayment fluctuations on the variable portion?
4. Are you planning to make extra repayments?
5. How long are you planning to hold this property?
Real-World Implications: Who Benefits from a Split Loan?Families Managing Budget Pressure
Many Australians are reconsidering how they handle their house loans in light of the Reserve Bank of Australia's (RBA) May 2025 reduction in the cash rate to, 3.85%. A split home loan could be something to think about if you're not sure whether to go with a fixed or variabl,e loan.
For example, families with variable income, ,such as those running small businesses, often benefit from the stability of a fixed portion paired with the fle,xibility of a variable part. This setup lets them plan monthly costs more accurately, without sacrificing the chance t,o reduce interest when market rates dip.
Some borrowers are using split loans as a strategy to hedge against ,uture rate hikes. With the RBA already reducing rates in 2025, there's speculation that this may reverse in the coming years. A split loan allows you to lock in a portion of your repayments now, reducing risk if variable rates climb again. It's a forward-looking option that balances optimism about current market trends with caution for what's ahead.
Property investors can also benefit from a split structure. The fixed portion helps set predictable outgoings, important for aligning rental income and planning cash flow. Meanwhile, the variable portion often includes features that assist with tax-efficient interest management and access to redraw facilities. This balance supports both strategic property planning and long-term wealth building.
In each of these scenarios, the split loan acts as a tailored financial tool, supporting different borrower needs without locking them into one rigid structure.
For many Australian borrowers, a split house loan provides a sensible compromise in the current economic climate. It may not be the best option for everyone, but if you want the freedom of variable rates combined with the security of fixed rates, it can be a wise choice. Services such as Empower Money offer resources and assistance to assist you in weighing your alternatives and determining what is practical given your circumstances.
The key advantage of a split loan is risk management. You gain some repayment stability through the fixed portion while retaining useful features, such as offset accounts and redraw facilities, on the variable side. At the same time, there are trade-offs, including added complexity and potential costs, especially if the fixed part restricts your ability to make extra repayments or exit early.
Deciding whether a split home loan is right for you requires a clear understanding of your long-term financial goals and risk tolerance. Working with lenders like Empower Money can provide clarity, especially when you're comparing structures or assessing borrowing capacity. Ultimately, the right decision comes down to your personal circumstances and financial objectives, not just market movements.
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