What is a home loan top up?
Learn how a home loan top up works, when you might consider one, and what to expect in Australia.
Are you in need of a bit of extra cash? If you’ve built up a bit of equity in your home, you might be able to use it to increase or top up your home loan.
Here’s how a loan top up works.
Home loan top ups
A home loan top up allows you to increase your existing home loan by borrowing against the home equity you’ve built up in your property.
You can then use this money to help you achieve other financial goals, like:
- Renovating your home
- Buying an investment property
- Going on holiday
- Buying a new car
- Paying school fees
- Consolidating debts like credit cards, personal loans or car loans.
How top ups work
To be able to access extra funds through a home loan top up, you’ll need to have built up enough home equity first. You can do a few quick sums to work out how much usable equity you’ve got in your property.
For example, if your home is currently worth $800,000 and you’ve got an outstanding loan balance of $450,000, you would work out your equity as the difference between the value of the property and the loan amount. In this case, your equity would be $350,000.
As a general rule, most lenders will let you borrow up to 80% of the current value of your home. Some lenders might let you borrow more, but you’d typically have to pay Lenders Mortgage Insurance (LMI).
So, to work out your usable equity you’d need to figure out what 80% of your home’s value is and subtract the amount still owing on your loan. 80% of $800,000 is $640,000. Less the amount owing gives you a usable equity of $190,000.
It’s worth noting that not all lenders offer home loan top ups.
Top up vs refinancing
While both refinancing and topping up your home loan can allow you to tap into your home equity, there are some key differences that set these two approaches apart.
Essentially, refinancing involves taking out a brand new home loan with your existing lender or a new lender entirely to replace your existing mortgage.
Refinancing can unlock a range of great benefits like:
- Securing a lower interest rate
- Saving on bank fees
- Consolidating debt
- Tapping into equity
- Accessing new features and facilities
- Adjusting the term of your home loan
On the other hand, a home loan top up involves increasing your existing mortgage by tapping into the usable equity in your property. A loan top up could be a good option if you’re happy with your current loan and interest rate but just need a little extra cash.
Reasons to top up your home loan
Home loan top ups can come in handy for a number of reasons, including:
Home renovations or improvements
Increasing your home loan can allow you to tap into your home equity to fund renovations. This can help to increase the value of the property or transform it into a more liveable space.
Debt consolidation
More often than not, the interest rate charged on your home loan is less than other types of debts, like credit cards, personal loans or car loans. If you have a few high-interest debts, it could be worth topping up your loan and putting these additional funds towards any outstanding debts.
Investment opportunities
From starting a new business to buying an investment property and expanding your share portfolio, sometimes it can help to have a bit of extra cash when potential investment opportunities arise. Topping up your home loan can allow you to access your equity to fund these types of investments.
Covering other expenses
Unexpected expenses can pop up from time to time. If you don’t have the cash to cover these types of costs, you might be able to top up your home loan instead. From weddings and your children’s education to medical expenses and emergency repairs, you never know when a bit of extra cash could come in handy.
Things to consider before you top up
Please note that Unloan does not offer split loans.
Before you apply to increase your home loan, it’s important to be across your financial situation and the implications of topping up your mortgage.
Here are a few factors to consider before you dive in:
Increasing debt
Increasing your home loan essentially means you’re increasing your debt. As your debt increases, so do the interest charges.
Depending on the terms you agree to as part of your top up, the term of your home loan could be extended too, so you might end up paying off your mortgage for longer than you initially anticipated.
Higher mortgage repayments
When you increase your mortgage, there’s a good chance you’ll be hit with higher minimum loan repayments. With this in mind, it’s important to make sure you’re able to comfortably service an increase in repayments.
Additional fees
Depending on your lender, you could be hit with an application fee to top up your home loan. Plus, if your lender requires a current property valuation to calculate your loan to value ratio (LVR), chances are you’ll have to foot the bill for this expense too.
Potential tax implications
Whether you’re borrowing to buy an investment property or you’d like to top up your investment loan, you could be opening yourself up to potential tax implications. In this case, it could be worth chatting with a tax accountant for some expert advice based on your financial situation.
Once you’ve built up a bit of equity in your home, you might be able to use it to increase or top up your home loan. Learn more about how our top ups feature works at Unloan.
Unloan is a division of Commonwealth Bank of Australia.
Applications are subject to credit approval, satisfactory security and you must have a minimum 20% equity in the property. Minimum loan amount $10,000, maximum loan amount $10,000,000, and total borrowings per customer across all Unloan loans is $10,000,000. (For purchase loans a minimum 10% equity is required - however a Lenders Mortgage Insurance (LMI) premium and higher interest rate apply. In some cases, depending on the property’s location or type, an LMI premium may also be required for LVR between 70.01% to 80%). For loans with Lenders Mortgage Insurance (LMI) the minimum loan amount is $10,000, maximum loan amount is $3,000,000 and total borrowings per customer across all Unloan loans is limited to $3,000,000).
Unloan offers a 0.01% per annum loyalty discount on the Unloan Live-In rate or Unloan Invest rate upon settlement. On each anniversary of your loan’s settlement date (or the day prior to the anniversary of your loan’s settlement date if your loan settled on 29th February and it is a leap year) the margin discount will increase by a further 0.01% per annum up to a maximum discount of 0.30% per annum. Unloan may withdraw this discount at any time. The discount is applied for each loan you have with Unloan.
*At Unloan, we do not charge any annual, application, banking, account, transaction, late or exit fees. In certain circumstances you may be required to pay a Lenders Mortgage Insurance (LMI) premium. Learn more about why this is applied and how it works. Government fees may also apply. Learn more about government fees here. Your current lender may charge an exit fee when refinancing.
Tax law is complex and subject to change. For the latest information, check the ATO website or with your accountant or financial advisor.
Unloan is a division of Commonwealth Bank of Australia is also not a registered tax (financial) adviser under the Tax Agent Services Act 2009 and you should seek tax advice from a registered tax agent or a registered tax (financial) adviser if you intend to rely on this information to satisfy the liabilities or obligations or claim entitlements that arise, or could arise, under a taxation law.
Applications are subject to credit approval, satisfactory security and you must have a minimum 20% equity in the property. Minimum loan amount $10,000, maximum loan amount $10,000,000, and total borrowings per customer across all Unloan loans is $10,000,000. (For purchase loans a minimum 10% equity is required - however a Lenders Mortgage Insurance (LMI) premium and higher interest rate apply. In some cases, depending on the property’s location or type, an LMI premium may also be required for LVR between 70.01% to 80%). For loans with Lenders Mortgage Insurance (LMI) the minimum loan amount is $10,000, maximum loan amount is $3,000,000 and total borrowings per customer across all Unloan loans is limited to $3,000,000).
Unloan offers a 0.01% per annum loyalty discount on the Unloan Live-In rate or Unloan Invest rate upon settlement. On each anniversary of your loan’s settlement date (or the day prior to the anniversary of your loan’s settlement date if your loan settled on 29th February and it is a leap year) the margin discount will increase by a further 0.01% per annum up to a maximum discount of 0.30% per annum. Unloan may withdraw this discount at any time. The discount is applied for each loan you have with Unloan.
*At Unloan, we do not charge any annual, application, banking, account, transaction, late or exit fees. In certain circumstances you may be required to pay a Lenders Mortgage Insurance (LMI) premium. Learn more about why this is applied and how it works. Government fees may also apply. Learn more about government fees here. Your current lender may charge an exit fee when refinancing.
Applications are subject to credit approval, satisfactory security and minimum deposit requirements. Full terms and conditions are found on our Unloan Terms and Conditions. Modified Terms and Conditions will be set out in our Notice of Variation Agreement, if you are approved. This article is intended to provide general information only. It does not have regard to the financial situation or needs of any reader and must not be relied upon as financial product advice.
