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Home loan top-up

If you've built up equity in your home, you may be able to draw out cash using a home loan top-up.

A home loan top-up is a way of increasing your loan amount so you can borrow some extra money. If you've been paying off your home loan and building equity in your home, then your lender may lend you extra money.

A home loan top-up often works out cheaper than using a personal loan or a car loan. But adding to your home loan does cost you more in interest over time.

What is a home loan top-up?

As you pay off your home loan, you are increasing the amount of the property you actually own. This is called equity. Note that if you've been making interest-only repayments your equity won't increase much because you haven't actually started repaying the loan.

Most lenders may let you increase your home loan so you can pull out some of this equity. You can use it to buy a car, renovate your house, take a holiday, whatever you like.

Home loan top-up scenario

  • You bought a $700,000 home with a 20% deposit. Your loan amount was $560,000.
  • A few years pass and your home is now worth $750,000 and your loan has shrunk to $480,000.
  • You now have $270,000 in equity (that's the current home value minus your remaining loan amount).
  • You want to borrow $30,000 to spend on some home renovations.
  • Your lender agrees and you top up your loan from $480,000 to $510,000.

Lenders set a cap on how much equity you can access. Some will lend up to 80% of your property's value, but it depends on your individual circumstances.

Keep in mind topping up your loan and spending this money means increasing your repayments or the amount of time it takes to pay off your mortgage. This means you'll be paying more interest in the long term.

Topping up a fixed rate loan

Topping up a variable rate home loan is usually straightforward. These loans are quite flexible and typically allow you to make extra repayments.

Fixed rate home loans are a different story. Often, lenders limit extra repayments on these loans. And topping them up is harder as well. Some lenders only allow top-ups on variable loans. But it really depends on the lender.

How do I get a home loan top-up?

Here are the quick steps to topping up your loan:

  1. You need to determine if your home loan is eligible for a top-up. Speak to your lender to determine if you're eligible.
  2. You'll have to go through an application process to increase your home loan. This might be an online form or a request via your lender's banking app. Some lenders charge an establishment fee for home loan top-ups, so be sure to ask your lender about any fees involved.
  3. Your lender will assess your serviceability. That is, your ability to meet the larger repayments. It may also conduct a valuation on your home to check its current value. This will determine your current loan to value ratio (LVR).
  4. If you apply and are approved, you'll be given access to the additional funds through a redraw facility which allows you to withdraw the extra cash as you need it.

Once you've spent the extra money you've borrowed, your repayments will increase. Your lender may agree to let you extend your loan term instead. This means your repayments stay the same but you take a bit more time to repay the loan.

Either way, you end up paying your lender more interest.

Finder survey: How often do Australians of different ages actively look at the home loans market for a better rate?

Response75+ yrs65-74 yrs55-64 yrs45-54 yrs35-44 yrs25-34 yrs18-24 yrs
I don't have a home loan, More often than quarterly41.86%24.84%12.28%8.7%3.15%0.97%11.43%
I don't actively check30.23%38.51%31.58%27.54%17.32%19.42%20%
Once per year9.3%18.63%24.56%22.22%24.02%13.59%12.86%
Twice per year6.98%9.32%10.53%14.01%20.87%23.79%17.14%
Source: Finder survey by Pure Profile of 1112 Australians, December 2023

What are the benefits of a home loan top-up?

Using a home loan top-up can be a more efficient way to finance purchases than applying for a personal loan, car loan or credit card. Home loans have lower interest rates than most other finance options.

And a home loan top-up will keep all your debt in 1 account with 1 repayment, which can make it much easier to manage. And you'll only be charged interest on the funds you choose to use.

What are the risks?

Borrowing more money means paying more interest as you pay it back. But it also means the equity you have in your property reduces. That's not a huge risk so long as you understand what you're getting into. You'll need to reassess your budget to make sure you can manage the new repayment amount.

And, while the majority of home loans carry lower interest rates than car loans or personal loans, carrying the debt over a longer term means you'll end up paying more in interest. It's wise to try to pay down the extra debt as quickly as possible.

Topping up a home loan may mean paying a fee to your lender as well.

What are the alternatives to topping up my home loan?

The alternatives depend on what you're using the funds for. You could:

  • Apply for a personal loan or car loan instead. While these carry higher interest rates, they also come with shorter loan terms, meaning you'll pay less in interest overall.
  • Refinancing your home loan. Switching to a new loan, and possibly a new lender, is a good time to try to borrow a little more money. This is more complicated than a top-up. But you can switch to a better home loan at the same time. A loan with a lower interest rate could save you a lot of money.
  • Consider a line of credit or home equity loan. This functions much like a home loan increase, giving you access to funds based on the equity in your home. A line of credit differs in that it's a separate loan account, requiring a separate repayment.
  • Depending on the size of your purchase you could also apply for a credit card. However, credit cards generally carry very high interest rates relative to home loans, and, depending on your credit limit, may offer a lower amount of funds for your purchase. If you choose to use a credit card for a major purchase, you'll need to ensure you're disciplined to pay it off as quickly as possible.

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