What is a home loan top up?
Did you know that you can borrow more against your home loan? It’s called a home loan top up, and it allows borrowers to borrow against their home equity. This essentially increases their current loan amount to fund other expenses like a renovation or a car purchase.
The reason some borrowers choose a home loan top up instead of a personal loan or credit card is that they potentially have lower interest rates and consolidated repayments. Read on to learn more about home loan top ups.
What does a home loan top up do?
With a home loan top up, borrowers can leverage the equity they have built to borrow more money from their lender. The home loan top up approval process works like this:
- The lender will assess the value of the property and the amount owing on the home loan to determine how much equity can be accessed.
- 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.
- Once everything is assessed and the borrower is deemed capable of paying increased loan repayments, their home loan top up is approved.
This can vary depending on the lender’s evaluation criteria and other factors. Lenders will review the borrower’s credit score, serviceability, and other factors to ensure they can pay a higher repayment amount.
What’s the difference between top ups and refinancing?
A home loan top up means borrowing more on top of the existing home loan. Meanwhile, refinancing is moving the existing home loan to an entirely different home loan product or to a different lender altogether.
For those who 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. However, there are costs to refinancing that need to be considered.
A home loan top up may be ideal for those who are happy with their current interest rates and features and would like to simply borrow more funds.
Pros and cons of a home loan top up
Before applying for a home loan top up, it’s best to weigh the benefits and drawbacks first.
Pros of a home loan top up
- Home loan interest rates are usually cheaper than other types of credit.
- The top-up will generally have the same loan term as the home loan, meaning the repayment will be easier to manage.
- Applying for a top-up could be quicker than a new loan.
- Avoid additional upfront and ongoing fees on a separate car loan, personal loan, or credit card.
Cons of a home loan top up
- Borrowing more to invest can be complicated at tax time— always speak to a tax professional.
- Your home loan repayments will likely increase.
- You may pay more interest over the life of the loan.
What to consider before getting a home loan top up?
Topping up a mortgage may cost less than taking out another loan or refinancing. However, topping up a home loan means adding to the principal loan amount, which could increase loan payments, extend the loan term, and increase total interest paid.
Before choosing to top up a home loan, it’s a good idea for borrowers to review their finances carefully and make sure this choice aligns with their financial goals.
Looking to top up your home loan?
Get in touch with loans.com.au today! Our friendly lending specialists will be more than happy to discuss your home loan top up options. Call 13 10 90 to get started.
Find out in under 2 minutes if you qualify for one of our home loans.
About the article
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.
