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Stability VS Flexibility: What type of interest rate to choose when considering a loan

As we all know, the choosing a loan is a difficult process. Between the stability of fixed interest rates and the flexibility of floating interest rates, it is often difficult to make a choice.


However, there is an option that allows you to enjoy the benefits of both low interest rates and a reduced impact of rising interest rates. This is also known as a split loan.



What is a split loan?

A split loan is a type of mortgage in which a loan is divided into two parts, one with a fixed rate and the other with a floating rate.


An example of this is, assuming you have a $200,000 line of credit, you can divide them into two loans of $100,000 with fixed and variable rates. This way you can enjoy both the flexibility and the stability of the loan at the same time.


What are the beneifit of split loans?

  1. A split loan is a compromise that allows you to enjoy the benefits of both loan types.

  2. In a split loan the fixed-rate portion protects you from sudden interest rate hikes while the variable rate loans portion allows you to enjoy the benefits of a lower interest rate. At the same time, there is an early repayment function, in which you can reduce the loan repayment time and interest paid.

  3. On the interest of the variable rate portion, you can also use the hedge account function as well as the attached withdrawal function, giving you the opportunity to reduce your own interest payment.

  4. When splitting a loan, there is no requirement for the proportion of each of the loan, you can split is according to your own situation to obtain the greatest benefit. In most cases, only two splits are allowed on the home loan.


Tips for splitting the loan:

  • In interest rates fall, the fixed-rate loan portion will not obtain the benefits of lower rates.

  • In the interest rates rise, the floating rate will also have an increased interest rate which will generate more interest.

  • The processing of split loans requires “handling fees”.

  • The fixed interest rate loan part cannot be repaid in advance to reduce the loan repayment time, otherwise a high termination fee will be required.


How to determine the split ratio in split loans:

The optimal proportion of split loans varies from person to person, the borrower should choose according to their own property liabilities, financial planning, required loan amount and other factors. It is best to consult with an experienced financial professional and leet them advise you.



What KBRZ has to Offer:

KBRZ provides you with high quality Australian home loans, self-employed loans, local overseas loans, pure overseas loans, business loans, building development loans, unsecured credit loans, car loans and other comprehensive financial credit services. We provide thoughtful services, flexibility, and quick processing procedures. We have our own KBRZ lending fund, as well as an independently approved commercial loan product and residential loan product, K-Direct and K-Loan. If you are hesitant to choose a loan, you are welcome to consult with KBRZ.





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