Split Home Loans

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Jellybean
Posts: 5
Joined: Wed Feb 17, 2010 11:52 am

Split Home Loans

Post by Jellybean »

Hi there,

I am thinking about splitting our homeloan into Fixed and Variable. I know the pros and cons of fixed vs variable, hence we chose to split. I'm in a bit of a pickle, because i'm not sure how much should be fixed/how much should be variable. FYI- our current loan amount is $366k.

Taking into consideration our main goal at the end of all this is to reduce our loan amount and paying more into principal, what do you suggest is the "best" or should i say, most logical format:

1) 70% Fixed @ 6.59% / 30% variable @ 6.31%, also should we be paying both Principal & Interest on both? If not, which component should be fixed and which should be variable?

OR

2) Should the variable loan amount be higher than the fixed loan amount? I read that by leaving a larger chunk into variable, is a better option as you retain the flexibility to allow for extra repayments and redraw. Would this option be a better option if our main goal was to reduce the loan amount?

Your expert advice is much appreciated as always. :)

I just do now know which way to go?

Kind Regards

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Otto Dargan
Mortgage Specialist
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Joined: Sat Sep 06, 2008 5:55 pm
Location: Sydney, Australia
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Re: Split Home Loans

Post by Otto Dargan »

This question is always a hard one to answer. The reason being is that for every person the situation is different. Usually I work out how much the person is likely to make in extra repayments over the fixed rate period and then we put that amount + a 30% buffer or so as variable. The rest can be fixed.

Paying P&I repayments on both parts sounds fine. I don't see any problems with that. What fixed rate term are you looking at?

Thanks
Otto Dargan
Mortgage Broker
P | 1300 889 743
Home Loan Experts

Jellybean
Posts: 5
Joined: Wed Feb 17, 2010 11:52 am

Re: Split Home Loans

Post by Jellybean »

Thank you Otto, for your prompt reply. At this stage, we are looking at 1 year fixed rate at 6.59%.

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Otto Dargan
Mortgage Specialist
Posts: 7730
Joined: Sat Sep 06, 2008 5:55 pm
Location: Sydney, Australia
Contact:

Re: Split Home Loans

Post by Otto Dargan »

Make sure that at the end of the 1 yr term that the rate drops to an acceptable rate. Also be wary of any high exit fees. Currently we have a 1 yr fixed rate loan from one of our lenders that is at 6.29%, allows extra repayments and redraw (so you do not need any variable portion!) and reverts to a lower rate at the end of one year. It is likely this discount will not be around for long due to the recent RBA rate increase. It would only be worth refinancing if you owe less than 80% of the property value and >$250,000.

Hope that helps!
Otto Dargan
Mortgage Broker
P | 1300 889 743
Home Loan Experts

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