Blog Article

With interest rates showing signs of potential decline in 2025, many homeowners are considering how to structure their home loans to get the best financial outcome. One effective strategy is splitting your mortgage—dividing it between fixed and floating rates. This approach can provide the stability of a fixed-rate loan while allowing flexibility to take advantage of falling rates.

What is a Split Mortgage?

A split mortgage means allocating portions of your home loan to different interest rate types. For example, you might choose to have half your loan fixed (locking in a known repayment amount) and half on a floating rate (allowing you to benefit from potential rate drops). The exact split can be tailored to your financial situation and risk tolerance.

Benefits of a Split Mortgage in a Falling Interest Rate Market

Enjoy Stability While Taking Advantage of Rate Drops

By fixing part of your mortgage, you ensure that a portion of your repayments remain predictable, protecting yourself from any unexpected rate fluctuations. Meanwhile, the floating portion gives you the flexibility to make extra repayments or refinance when rates decrease.

Pay Off Your Mortgage Faster

With a floating portion, you can increase repayments without penalties, unlike a fully fixed loan where break fees may apply. If interest rates drop, you can direct extra funds toward your floating loan, reducing your principal faster and saving on interest costs.

Spread Your Risk

Timing the market perfectly is challenging. A split mortgage helps balance risk—you won’t be locked into a high fixed rate if rates drop significantly, but you also won’t be fully exposed to potential rate hikes if the market shifts unexpectedly.

Flexibility for Future Refinancing

If interest rates continue to decline, the floating portion of your loan can be refinanced or refixed at a lower rate without incurring costly break fees on the fixed portion. This allows you to gradually adapt your loan to changing market conditions.

How to Structure Your Split Mortgage

Every person’s situation is different, but common split structures include:

• 50/50 Split: Half fixed, half floating—offering an even balance of security and flexibility.
• 80/20 Split: A majority fixed for stability, with a smaller floating portion for flexibility.
• Multiple Fixed Terms: Splitting into different fixed-rate periods (e.g., 1-year and 3-year terms) to stagger when parts of your loan come up for renewal. This can most beneficial to gain the best value out of fixed rates.

Is a Split Mortgage Right for You?

If you want certainty in repayments but also the ability to take advantage of lower rates, a split mortgage could be the right choice. The ideal structure depends on your financial goals, risk tolerance, and the expected movement of interest rates.

Talk to our team

Navigating interest rate movements can be tricky, but with expert advice, you can structure your mortgage to minimise costs and maximise flexibility. Get in touch with us today to discuss how a split mortgage could work for you in 2025!