The Pros And Cons Of Home Loan Top-Ups

Increasing or topping up your home loan can be an excellent way to access additional funds for those big purchases, particularly when compared to credit card options. It enables you to lend extra cash against the equity you have built on your property, which you can use to pay for a holiday, upgrade your car and more.

The Benefits Of Home Loan Top-Up

Increasing your mortgage can be a more affordable alternative to taking out different kinds of loans or using a credit card, given that interest rates on home loans are substantially lower. It also has the edge over credit cards (and other unsecured borrowings) as it enables you to lend more.

Moreover, a top-up can take the hassle out of managing your debts. Instead of handling many credit accounts, you can even consolidate them into one and pay a single interest rate on them.

The Downsides Of Home Loan Top-Up

The downside of topping up your mortgage is it increases your debt. Regardless, the amount granted by your bank, you can expect your weekly or monthly repayments to increase.

You will also pay off the increased debt instantly. Else you will invalidate the benefits of a top-up. Let’s assume you have 12 years left on your home loan, and you ask your bank to increase your borrowed sum so you can buy a new car. While the rate might be much lower than an average auto loan, the cumulative interest rate could be higher if you extend your repayments over the entire 12 year period.

How Does It Work?

When evaluating your application for a top-up loan, your lending institution will analyse your current loan-to-value ratio (LVR). Typically, the LVR is 80 per cent of the property’s value.

When it is likely to borrow more, this needs purchasing Lender’s Mortgage Insurance (LMI). It protects your lending institution against the loss if you fail to repay the loan and can be pretty expensive.

Final Thoughts

You should keep in mind that the top-up request is subject to your bank’s approval. Hence, you must show you are on a firm financial footing and not skip your monthly repayments. Your lender will also decline your application if the reason for increasing your home loan sum is to cover tax bills or business expenses.

If you are unsure home loan top-up is the right option for you, let’s connect for a no-obligation consultation.
Loan Guides Logo

Are You Ready To Refinance Your Home Loan And Get More Of What You Want?

We're here to help, just let us know how!

Type Of Enquiry: