DOING the splits is best performed by ballet dancers or those with much more flexibility than most of us, but a growing number of Aussies are giving it a go.

With their home loans, not their legs, that is.

Mortgage broker Loan Market says there has been a boom in enquiries in the past month from people looking to split their mortgage between fixed and variable rates. Interest in split loans is up 70 per cent year-on-year, it says, adding that split loans are particularly popular with first home buyers who are uncertain about taking on debt.

Taking this each-way bet on a mortgage delivers borrowers the best of both worlds – the ability to lock in a low fixed rate for peace of mind plus some repayment flexibility with the variable portion.

But be warned, ballet lovers. It also can result in the worst of both worlds.

The penalties for exiting a fixed-rate mortgage early can apply to the fixed part of the mortgage. These penalties stung many borrowers badly during the global financial crisis, costing people thousands of dollars when they tried to switch loans as variable interest rates dropped sharply.
Selling a home also cancels the loan, so if you are fixing for a few years, be prepared to stay put for that time.
Split loans still deliver the rollercoaster rate ride that variable loan borrowers take, although not usually with the same stomach-churning twists and turns. It all depends on how much is fixed and how much remains on variable.

There may also be establishment fees and ongoing fees charged on both portions of the loan, so it’s important to check with a lender first.

Despite the possible downfalls, it’s no wonder that more people are thinking about splitting. Fixed rates have fallen below 5 per cent in many cases, well below the standard variable rates currently offered.

Crunch the numbers and understand the fees, and it may work for you.

But as someone who had to sit through almost six consecutive hours of children’s ballet concerts a few months ago, I can say with a grimace that doing the splits can be painful at times.

Posted by Anthony Keane – News Limited Network on 16th March, 2013