5 things you may not know about home loan top ups

Home loan top ups can be a great way to use your equity to free up a bit of extra cash. Whether you’re looking to renovate your home, buy an investment property or purchase a new car, there are plenty of reasons to consider topping up your home loan. 

But before you increase your mortgage, it’s important to know the good and the bad that come with topping up. So, if you think topping up your home loan might be the right move for you, here are a few points worth knowing about increasing your mortgage that you might not be aware of. 

1. A top up doesn’t involve refinancing

A home loan top up and refinancing are two ways to tap into your equity, but they’re not the same. A home loan top up simply involves using your home equity to add a bit of extra cash to your existing mortgage. 

Alternatively, refinancing is the process of replacing your existing loan with a new mortgage, either with the same lender or a new lender. Besides accessing equity, borrowers will generally refinance their home loan to unlock a lower interest rate, adjust the length of their home loan or switch from a fixed-rate to a variable-rate loan (or vice versa).

With this in mind, the documentation and process for obtaining a top up loan are usually simpler and quicker compared to refinancing since it involves building upon an existing loan relationship with the lender. On the other hand, refinancing typically involves extensive documentation similar to the initial home loan application process, including property valuation, income verification and credit checks. The process can often take longer, involve more paperwork and cost more compared to a top up loan.

2. Your mortgage repayments will increase

When you top up your home loan, you’re essentially increasing the amount of money that you owe to your lender. While it might seem like common sense, it’s important to note that when you increase the balance of your home loan, you’re likely to increase your mortgage repayments too. 

When you top up, the time remaining on your mortgage often remains the same. That means that you now have to repay more money within the same amount of time, so you’ll need to make up for that by making larger repayments. And don’t forget, you’ll also have to pay interest on top of your loan increase, so it can be worth factoring the additional interest repayments in too.

At Unloan, we provide our customers the flexibility to adjust the loan term. You can choose to maintain, extend or reduce your loan term. Please note that this will affect your monthly home loan repayments.

At Unloan, we provide our customers the flexibility to adjust the loan term. You can choose to maintain, extend or reduce your loan term. Please note that this will affect your monthly home loan repayments.

With this in mind, it’s important to make sure you’ve run the numbers and can comfortably afford to service higher mortgage repayments. It’s not difficult to calculate your loan repayments. In fact, we created a guide to help you understand your mortgage repayments. Otherwise, you can use our repayment calculator to work out how much your repayments could look like after a top up. 

3. Topping up isn’t free

While topping up your home loan isn’t quite as costly as refinancing, that doesn’t mean it’s free. Some lenders charge a processing or settlement fee to cover the administrative costs of topping up a loan. So if you’re thinking of topping up, it’s always worth enquiring about these fees before you get the ball rolling. 

While you might have to pay to Top Up your loan, the cost of topping up is often much more affordable than refinancing your home loan. Not to mention, the process of topping up tends to be a lot quicker and more straightforward than switching to a new lender when you’re refinancing. So, if you’re happy with your current interest rate and the terms of your home loan, it could be worth simply topping up rather than going through a full refinance.

With an Unloan home loan top up, we don’t charge our customers any fees. However, when you top up, the accrued interest to date will be added to the loan balance as part of the restructuring process. This amount is then included in your updated loan amount.

4. You must meet certain eligibility criteria

Just because you already have a home loan with your current lender doesn’t necessarily guarantee that you’ll be eligible for a top up. Instead, you’ll need to meet certain eligibility criteria before they’ll grant you a Top Up. 

Your lender will often consider a range of factors, including your repayment history on your existing loan, the current value of your property, your financial circumstances, including your income and debts, as well as your credit score. If these factors meet their lending requirements, then you’ll usually be well placed to receive an increase.

As part of the application process, you’ll generally need to provide documentation like proof of income, property documents and ID before your lender approves your top up application.

5. Top ups are often capped

When it comes to home loan increases, you don’t have access to an unlimited pool of funds. Top Ups are typically capped by your lender. This limit is usually determined based on various factors such as the property's current market value, how much home equity you have and your ability to make increased loan repayments.

Just like traditional home loans, most lenders will lend you up to 80% of your property’s value. While some lenders may be willing to let you borrow up to 95% depending on the type of home loan you have, if your loan to value ratio (LVR) exceeds 80%, you’ll usually be charged lender’s mortgage insurance (LMI) to cover the extra risk that comes with having a high LVR loan. With this in mind, it’s important to run the numbers to understand how much you’d like to increase your loan by and how this will affect your LVR.

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.

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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. Please consider seeking financial advice before making any decision based on this information.‍

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 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.