You can take your best guess at what might happen in the coming months and years, but you can never entirely predict the future.

Where does that leave you when you have a 30-year mortgage debt to pay off?

No one wants to pay more interest costs than necessary.

Safeguarding yourself against big hikes in your repayments largely comes down to your mortgage structure.

While the exact answer to the best structure for your mortgage will depend on your individual circumstances, we’ve assembled some general advice to help you understand what mortgage structure might work best for you.

Fixed vs Floating

We’ve discussed the ideas behind whether to fix or float your mortgage numerous times, so we’ll just do a quick recap here.

• Fixed rates mean your interest rate and repayments will stay the same for a set period of time (anywhere between 6 months and 5 years). Fixed rates are great for predictability and budgeting, as you always know what you will pay. They also protect you if rates rise. The downside is that you might miss out on savings if rates drop significantly.
• Floating rates move with the market, meaning they can fluctuate up and down depending on what’s happening locally and internationally. They are great for flexibility, but also come with an element of uncertainty. If rates drop, you will pay less, but if rates rise, your payments will increase.

Deciding whether you will fix or float your mortgage will often come down to how comfortable you are with risk, whether rates are expected to go up or down, and whether your personal finances can absorb increased repayments if rates rise.

A Split Mortgage Structure

Rather than choosing a blanket strategy of fixing or floating your entire mortgage, there is another tactic you could explore. You could explore the option of splitting your mortgage into portions and fixing each portion for a different term (or float some of it).

Here is an example of what that mortgage structure could look like:

• One portion fixed for a longer term of several years (if the rates are good) to create certainty and stability.
• Another part fixed for a shorter term of 6-12 months so that you can take advantage of possible rate drops.
• Another small portion on floating or with an offset account if you have savings to utilise or have the possibility of making extra repayments.
• You might mix up the terms of your portions, or have a mixture of fixed and floating so you don’t get hit all at once if rates rise, but also don’t miss out entirely if they fall.

The idea of splitting your mortgage into portions is that you spread your risk, rather than putting all your eggs in one fixed or floating basket.

The Risks and Benefits of Splitting

Like any strategy, there are risks and benefits involved with splitting your mortgage into different portions. They are:

Benefits

• Protection against rate increases: If interest rates rise sharply, then you aren’t entirely exposed. Only part of your mortgage might be impacted.
• Take advantage of rate decreases: By splitting your mortgage into different portions, some portions might benefit from falling rates.
• More control over your cash flow: By not having to refix your entire mortgage at one time, you can smooth out repayment increases and avoid nasty shocks.
• Better risk management: You can craft a more balanced strategy rather than committing entirely to one type of rate.

Risks

• More complexity: Managing multiple portions can mean more admin work as you will need to keep track of different expiry dates, terms and loan products.
• Break fees or refinancing costs: If you want to exit your terms early, you may end up paying multiple break fees or refinancing costs across the different portions. Switching lenders or changing parts of your borrowing can incur costs.
• Potential for higher costs: You may end up paying more in the long run for some portions if the timing does not line up for a good market advantage.
• More decisions to make: When you have more loan portions, you have more choices to make. You’ll need to make decisions when each portion comes up for renewal or refixing.

Is Splitting Your Mortgage Right For You?

Splitting your mortgage can be a great way to work the market and open yourself up to opportunity. But it is not necessarily right for everyone.

Here are some things to consider when assessing whether it is a good strategy for you:

1. What is your tolerance for risk? Will you be comfortable if interest rates rise?
2. What does your income look like? If repayment shocks will be hard on your budget, more fixed portions could help navigate this.
3. How often are you willing to revisit or adjust your mortgage structure? Splitting requires active management
4. Do you understand the finance market or have access to an expert mortgage adviser to help you choose the right option when your portions come up for renewal?

The Importance Of Working With A Mortgage Adviser

Generic advice like “rates are low, fix everything” or “rates are about to drop, go floating” doesn’t necessarily work for everyone. That’s why tailored advice can be so valuable.

A mortgage adviser does more than just tell you the options. They help you:

• Analyse your financial goals, risk tolerance, and plans
• Compare what the real costs will be under different scenarios and choose the right option that suits your budget
• Forecast potential rate rises and help you decide how much risk is acceptable
• Understand all the fees, break costs, or restrictions that might come with different loan structures
• Build a structure that gives you both protection and flexibility, not just one or the other

There is no one perfect mortgage structure for everybody. The best setup will depend on your budget, cash flow, goals and appetite for risk, which is why the support of a mortgage adviser is essential.

If you would like to explore what mortgage structure might work best for your situation, then the friendly team here at Mortgage Suite can help. We’ll work through your numbers, risk tolerance and your plans to build a mortgage strategy that fits you. Contact our team today.