2 September 2026 * 12 minute read

Choosing between a fixed rate home loan and a variable rate home loan can feel like an either/or decision, but it doesn't have to be.

A split home loan lets you divide your loan balance into up to three separate loans, so part of your home loan sits on a fixed interest rate, and the rest tracks the variable rate. That means you get budgeting certainty on one portion of the loan, and flexibility, such as unlimited additional repayments and an offset account, on the other.

In this guide, we break down how fixed loans and variable loans compare, how a split loan works, and how you can tailor the split to suit your needs. We also point you to the Westpac split loan calculator so you can model your own numbers.

Key takeaways

• A split home loan divides your loan balance into separate accounts, so you can enjoy the security of a fixed rate loan alongside the flexibility of a variable rate loan.
• You can choose the percentage split between the fixed portion and variable portion
• Paying off the fixed portion of your home loan ahead of schedule, or switching products early, may mean you incur break costs, so it pays to understand how a split loan works before you commit.
• It’s also possible to split into two variable loans, which may help separate owner-occupier and investment portions, or if you’d like to use different repayment terms or features for each.

The decision between fixed and variable loans

When you take out a home loan, one of the biggest decisions is whether to go with a fixed rate or a variable rate. A fixed interest rate gives you certainty over your home loan repayments for a set term, which could make budgeting easier. A variable interest rate, on the other hand, moves with the market, so your repayments may go up or down depending on broader economic conditions, including changes to the cash rate.
Both options have genuine advantages, and the "right" choice often depends on your financial situation, how much certainty you need, and how much flexibility you want to manage your loan repayments over time.

What is a fixed rate home loan?

Interest rates regularly change in response to market changes, such as shifts in the cash rate set by the Reserve Bank of Australia. With a fixed home loan, your interest rate won’t change during the fixed rate loan term.

This gives you some certainty that your interest rate and monthly repayments will stay the same for the fixed term, making budgeting and future planning easier.
With a Westpac Fixed Options home loan, for example, you can fix your interest rate for a loan term (length) of 1 to 5 years.

You could choose to take advantage of a low interest rate being offered, locking it down for the agreed term. But it’s important to remember that you can’t see the future – there is a chance the market may change, and your fixed rate could end up being higher than the variable rates available in the market.

Fixed rates are also less flexible and often have limits on making additional repayments to your home loan, meaning you may not be able to get as far ahead on your loan should you happen to have spare cash to put towards it. They also have fewer features, such as no offset account, and can incur a break cost fee should you repay your loan early, switch your product or change your interest rate during the fixed rate period.

Pros of a fixed rate home loan:

● Certainty over home loan repayments for the length of the fixed rate term, allowing for easier budgeting and forward planning
● Protection if interest rates rise during your fixed term

Cons of a fixed rate home loan:

● If interest rates drop, you could end up paying more than the current variable rate
● Fixed loans often limit additional payments, so you can't always get ahead on your loan amount
● Fewer features overall – for example, there may be no offset account on the fixed portion
● You may incur break costs if you repay your loan early, switch products, or change your rate during the fixed rate period

What is a variable rate home loan?

If it's flexibility you’re after, it’s flexibility you’ll get with a variable rate home loan. This loan option typically comes with a range of features which allow you to adapt based on changes in your life or financial circumstances.

For example, if you find yourself with some extra money you’d like to put towards your mortgage, you can generally make unlimited extra repayments, which balances against your home loan amount, resulting in lower interest charges (our repayment calculator shows how this could work). And, if you need access to that cash at a later date, you might choose to have a redraw facility, where you can redraw additional funds.

Variable rate loans can also have features such as an offset account, which is a transaction account linked to your home loan that can help you pay off your mortgage sooner. In a nutshell, keeping savings or spare cash in an offset account will reduce the balance on which you pay interest, meaning you pay less interest and more off your loan principal every month.

But when it comes to variable rate loans, it’s important to be aware that your interest rate will likely change over time. This can work both ways – you could reap the benefits of rate decreases in a low-interest rate environment, but you could also find your rate increases, which would involve paying more on your regular loan repayments. So, it’s worth considering how you would manage repayments if this was to happen. Our interest rate change calculator could help.

Pros of a variable rate home loan:

● Generally, allows unlimited additional repayments, reducing the amount on which you pay interest
● Often includes a redraw facility, so you can access extra funds you've paid in
● Can include an offset account, which is a linked transaction account that reduces the balance interest is calculated on, helping you pay down your loan principal faster
● Benefit automatically if interest rates drop

Cons of a variable rate loan:

● Repayments can rise if interest rates go up, so there's less certainty than a fixed rate loan
● Requires a plan for how you'd manage repayments if rates increase

What is a split loan?

A split loan is when you divide your home loan balance into up to three separate accounts – meaning you can nominate a portion of the loan to have a fixed interest rate, and the remainder could have a variable interest rate. You may also choose to split your loan into two variable portions.

While there are pros and cons to both fixed rate and variable rate home loans, a split loan allows you to tailor your home loan in a way that works best for you and your financial goals.
Whether you want to get ahead on your variable rate loan with no cap on extra repayments or are interested in the security of a fixed rate loan, split loans allow you to create the right home loan to suit your needs.

How does a split loan work?

What percentage of the loan is fixed and variable is completely up to you! For example, you may choose a 60:40 split on your $500,000 home loan. Your home loan would then be divided into two separate loans with a fixed interest rate charged on $300,000 and a variable interest rate on the remaining $200,000.
Similarly, if you find you want to switch your fixed rate to variable at the end of its loan term, you can. You can also switch before the end of the fixed rate term if you need to, but keep in mind you may incur break costs. At Westpac, customers can make total prepayments of up to $30,000 (cumulative) for fixed loans, without costs or fees applying. You may incur a break cost and administration fee if your prepayments exceed this threshold, or if at any time before the end of a fixed rate period you switch to another product, interest rate (fixed or variable) or repayment type.
Unlike most other lenders, with Westpac you can redraw your fixed loan extra repayments. So, you've got the freedom to shift your ‘available’ funds into whichever fixed or variable account has the higher interest rate at the time, to pay less overall interest.
It’s important that you know exactly what your home loan interest rates and repayments will be for the set term on the fixed rate portion. And remember, an establishment or monthly fee may apply if you decide to split your loan balance, unless you have a packaged home loan, such as Westpac’s Premier Advantage Package.
Before choosing to split your home loan, it’s a good idea to weigh up all the options and speak to a Home Finance Manager to help you decide what’s best for you and your financial situation.

To sum up

Choosing between a fixed rate loan and a variable rate loan doesn't have to be all-or-nothing. A split home loan divides your loan balance into up to three separate loans, giving you the best of both worlds: the certainty of a fixed interest rate on one portion of the loan, and the flexibility of a variable interest rate, offset account and unlimited additional repayments on the other. Turns out you can have your loan and split it too.

If you’re applying for a new home loan with Westpac, you can do this online and one of our home lending specialists will call you to talk you through the process. For an existing home loan, you might choose to fix part of all of your variable rate loan balance via Westpac Live Online Banking.