Split-rate Loan Example in PIA

One of the recent changes to the PIA software is the ability to accommodate a split-rate loan.  But what is a split-rate loan and how does it differ from a split loan in PIA?

A split loan in PIA is where the finance for an investment property is made up of two separate loans.  One may be a fixed-interest interest-only loan while the other may be a principal and interest loan on a variable interest rate.

A split-rate loan differs from this in that it is made up of just one loan but the loan amount is subject to two interest rates.  For example an 8% split-rate loan may be made up of say 4% interest-only and 4% capitalised, and these rates and proportions may differ from year to year.

Lets consider an example of a 8.2% split-rate loan of $400k in which the interest rate is split into two components (interest only and interest capitalised) over the first four years and reverts to interest only from year 5 onwards.

Year	Rate A (Interest Only)	Rate B (Capitalised)
1	3.95%	4.25%
2	5.20%	3.00%
3	6.20%	2.00%
4	7.20%	1.00%
5+	8.20%

 

In PIA, the Interest and Loan Type dialog should be set up as follows...

The first thing to note is that there is a new Loan Type check box to indicate Split rate.

The average rates shown are not important at this stage as they will need to be set on an annual basis in the Annual Interest Rate dialog which is accessed by clicking on the Specify Annual Rates button at the bottom of the dialog as shown above.  This is then completed as shown below.

Note that while the total interest for the first year is $33,447, the payment is just $16,111 as the remainder is added to the loan.

 

When this is entered and the user returns to the spreadsheet, the row title will indicate a split rate loan of 8.2%.