[MoreMore Insights] What is Split Loan?

A split loan is a type of mortgage or loan structure that allows borrowers to divide their loan into two or more portions with different interest rates or terms. This strategy provides borrowers with a certain level of flexibility and risk management. Here are some key points to understand about split loans:

Option for Multiple Portions:

In a split loan, the total loan amount is divided into two or more portions. Commonly, borrowers choose to split their loan into fixed rate and variable rate portions. One portion of the loan may have a fixed interest rate, providing stability in repayments, while the other portion may have a variable interest rate, allowing for potential savings if interest rates decrease.

Adequate Risk Management:

A split loan helps borrowers manage interest rate risk. If interest rates rise, the fixed-rate portion provides protection, while the variable-rate portion allows borrowers to benefit from potential rate decreases. In a simple way of speaking, borrowers can benefit from falling interest rates and minimize the impact of interest rate hikes.  It provides a balance between the stability of fixed rates and the potential cost savings associated with variable rates.

Adjustable to Your Preferences:

Borrowers have the flexibility to choose the percentage of the loan to allocate to each portion. Common splits include 50/50, 60/40, or other combinations based on individual preferences and market conditions.

In What Situation is Split Loan Suitable for?

A split home loan may be suitable for you if you are feeling concerned about the current interest rate cycle or if you foresee an interest rate hike may be incoming. With a split loan, you can partially protect yourself from any interest rate increases that may come into effect during the fixed-rate period.

At the same time, a split home loan may also work best for you if you are looking for both flexibility and security. The fixed part of the home loans is great for security and budge planning, while the variable part provides flexibility of loan repayment.