Why Should First Home Buyers Consider Split Loans?

Your first home loan doesn't have to be entirely fixed or entirely variable.

A split loan lets you divide your borrowing between both rate types, giving you some protection from rate rises while keeping partial access to features like an offset account. The choice between fixed, variable, and split structures is one of the first decisions you'll make after getting pre-approval, and it shapes how much flexibility you'll have over the life of your loan.

How a Fixed Rate Home Loan Works for First Home Buyers

A fixed rate locks in your interest rate for a set period, usually between one and five years. Your repayments stay the same during that period regardless of what happens in the broader market.

Consider a first home buyer purchasing an apartment in Kingston who locks in a fixed rate for three years. If the Reserve Bank lifts the cash rate twice during that period, their repayments don't change. They know exactly what they'll pay each fortnight, which makes budgeting more predictable when you're adjusting to homeownership for the first time.

The downside is that most fixed rate products don't come with an offset account, and you're usually limited to making extra repayments of around $10,000 to $30,000 per year depending on the lender. If rates fall during your fixed period, you're still locked into the higher rate. And if you need to break the loan before the fixed term ends, you may face break costs that can run into the thousands.

What a Variable Rate Home Loan Offers

A variable rate moves up or down in line with lender decisions, which are usually influenced by the Reserve Bank's cash rate. When rates drop, your repayments drop. When they rise, so do your repayments.

Variable loans typically offer full access to features like offset accounts and unlimited extra repayments with no penalties. If you receive a tax refund, a work bonus, or savings from another source, you can pay down the loan as quickly as you want. You can also redraw those extra funds if needed, though some lenders charge a small fee for this.

The risk is that your repayments can increase without much notice. In an environment where the cash rate is rising, a variable loan can become more expensive quickly, and that can strain your budget if you haven't built in a buffer.

Why Split Loans Are Popular with First Home Buyers

A split loan divides your borrowing into two portions: one fixed, one variable. You might fix 50% of the loan for three years and leave the other 50% variable, or choose any ratio that suits your circumstances.

This structure lets you lock in part of your repayments for certainty while keeping access to offset and redraw features on the variable portion. If you're using a guarantor loan to enter the market with a smaller deposit, a split can be particularly useful because it gives you flexibility to pay down the loan quickly once you're in a position to do so, without losing all rate protection.

In our experience, buyers who expect irregular income, such as bonuses or commissions, often prefer a split. They can park surplus cash in an offset account linked to the variable portion, reducing interest on that half of the loan, while the fixed portion provides a baseline level of budget certainty.

How to Decide Which Split Ratio Makes Sense

The right split depends on how much certainty you need and how much flexibility you want to preserve. A 50/50 split is common, but there's no rule that says you have to divide it evenly.

If you're buying in a region like Launceston or Devonport where first home buyer stamp duty concessions can reduce upfront costs significantly, you might have more cash left over after settlement. In that case, a higher variable portion, say 70%, gives you room to use an offset account more effectively. If your income is less predictable or you prefer stable repayments, a 70% fixed split might suit you better.

Some lenders let you fix multiple portions at different terms. You could fix 30% for two years, 30% for four years, and leave 40% variable. This staggers your fixed rate expiries, which can smooth out the impact of rate changes when each fixed term ends. It adds complexity, but it's worth considering if you want to avoid a large repayment jump all at once when a single fixed term expires.

What Happens When Your Fixed Rate Period Ends

When your fixed term expires, that portion of your loan automatically rolls onto the lender's standard variable rate unless you take action. Standard variable rates are usually higher than the discounted rates offered to new customers, so this is the time to either lock in a new fixed rate or refinance to a better deal.

If you've split your loan and only half of it is fixed, the transition is less dramatic because your variable portion has already been fluctuating. You'll still want to review your options around three months before the fixed rate expiry, but the impact on your budget is smaller than if your entire loan had been fixed.

Lenders won't always notify you with enough time to compare your options, so it's worth setting a reminder yourself or speaking with a broker well before the expiry date.

Interest Rate Features That Matter for First Home Buyers

An offset account is a transaction account linked to your home loan. The balance in the offset is subtracted from your loan balance when interest is calculated, so if you have a $400,000 loan and $15,000 in your offset, you only pay interest on $385,000.

Offset accounts are almost always available on variable loans and rarely available on fixed loans. If you're planning to use an offset as your main transaction account, you'll want at least part of your loan on a variable rate. The interest you save by keeping funds in offset can be more valuable than the rate certainty you'd get by fixing that portion, particularly if you maintain a healthy balance.

Redraw lets you access extra repayments you've made above the minimum. Most variable loans offer free redraw, though some lenders have minimum redraw amounts or processing times. Fixed loans usually allow limited extra repayments, and redraw on a fixed loan is less common. If you think you'll need to access extra funds during the loan term, a variable portion gives you that flexibility.

Can You Change Your Loan Structure After Settlement

You can't convert a fixed loan to variable or vice versa mid-term without breaking the fixed contract, and that usually triggers break costs. But once your fixed term expires, you can choose to refix, switch to variable, or adjust your split ratio.

If your circumstances change and you want to restructure your loan before the fixed term ends, refinancing to a new lender is an option, but you'll still face break costs on the existing fixed loan plus the usual costs of refinancing. It's worth running the numbers with a broker before committing to that path.

Some lenders allow you to split an existing variable loan into fixed and variable portions without a full refinance, though you may need to meet serviceability criteria again depending on the lender's policy.

How First Home Buyer Schemes Affect Your Rate Choice

If you're using the First Home Guarantee to purchase with a 5% deposit, the rate type you choose doesn't affect your eligibility. The scheme applies to both fixed and variable loans, and you can split your loan under the scheme as long as the lender supports it.

What does matter is Lenders Mortgage Insurance. If you're borrowing more than 80% of the property value and you're not using a government guarantee, you'll pay LMI. That's a one-off cost, and it doesn't change based on whether you fix or go variable. But because LMI can add thousands to your upfront costs, buyers using a low deposit option often prioritise features that help them pay down the loan quickly, which tends to favour variable or split structures.

The First Home Super Saver Scheme lets you withdraw contributions from your super to use as a deposit. Once those funds are out and you've settled on the property, your loan structure is a separate decision. The scheme doesn't restrict your choice of rate type.

Why Speaking with a Broker Helps You Compare Options

Lenders price their fixed and variable loans differently, and the gap between the two changes regularly. One lender might offer a competitive three-year fixed rate but a less attractive variable rate. Another might have a strong variable rate with a high-quality offset account but higher fixed rates.

A mortgage broker can show you how different rate structures perform across multiple lenders and help you model what happens to your repayments under different scenarios. That's particularly useful for first home buyers who haven't yet built up a sense of how much buffer they need or what repayment level feels sustainable over the long term.

If you're buying in Tasmania and eligible for the state's first home buyer stamp duty concession, or if you're accessing one of the regional grants, a broker can also help you factor those savings into your deposit and structure the loan to make the most of any extra funds you have at settlement.

Call one of our team or book an appointment at a time that works for you.

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