Getting a Home Loan in Australia if you're living overs...
29 Nov 2023
If you own a home, and have been chipping away at your home loan repayments, you might be considering renovating, going on a holiday or buying a car. A home loan top up allows you to borrow more money to fund another goal.
Home loans often have a lower interest rate than credit cards, personal loans or car loans, meaning they might allow you to borrow at a better rate.
A home loan top up allows you to borrow against the home equity you have built in your property. You can use the borrowed money to fund another goal like:
Your lender will need to assess the value of the property and the amount owing on your home loan to determine how much equity you can access in your home.
For example, you have taken out a loan of $500,000 to purchase a home that was valued at $600,000 at the time of purchase. That means you paid a deposit of $100,000 at the time of purchase.
Three years later, you have paid off $100,000, leaving $400,000 as an outstanding balance.
In the time since the home was purchased, property prices in Australia have increased 20% and the home is now worth $720,000.
That means over the course of the three years, you have built up $320,000 in equity, calculated as the market value of your property ($720,000) minus the amount owed on their loan ($400,000).
As topping up requires a lender loaning more money, the lender will consider the current loan-to-value ratio (LVR) of the home loan. Usually, the maximum LVR for tapping into equity is 80% of a property's value. This means on a property worth $720,000 the potential loan value would be $576,000. Subtract the amount still owed, being $400,000, and the maximum amount the lender could add to your loan as a top up is $176,000.
This process depends on whether your property has increased in value over the course of the loan, and if you have been approved by your lender following evaluation of your credit score, serviceability and ability to pay increased loan repayments.Calculate your equity
Top-up home loans are different to refinancing, and both can be great options.
Refinancing is the process of moving your home loan to a different loan or a different lender that better suits you. There are a number of reasons for doing this, but the number one reason is to save money on your loan.
If you need to free up some cash to facilitate another purchase, refinancing can help by changing to a loan with a better interest rate, or better features.
There are many benefits to refinancing your home loan, such as:
If you are already happy with your interest rate and features of your home loan product, you may want to top-up your home loan.
Topping up your mortgage will most likely cost less than taking out another type of loan because home loans typically offer lower interest rates than credit cards and personal loans.
However, topping up your home loan also means you’re increasing your debt and therefore could increase your loan repayments. When considering a top up, make sure you’re comfortable with any potential changes to your repayments, and the increase in interest you will pay over the life of the loan.
It’s also important to understand using your loan to facilitate another purchase like a car or holiday, the life of that purchase could be significantly shorter than your remaining home loan term. Ensure this is compatible with your financial goals and what you are able to afford moving forward.
Looking to top up your home loan?
As Australia's leading online lender, loans.com.au has been helping people into their dream homes and cars for more than 10 years. Our content is written and reviewed by experienced financial experts. The information we provide is general in nature and does not take into account your personal objectives or needs. If you'd like to chat to one of our lending specialists about a home or car loan, contact us on Live Chat or by calling 13 10 90.