10 things you may have not known that you could do with a home loan top up

Topping up your home loan can be a great way to access your home equity without having to refinance to a completely different loan product. While many people use a top-up to fund renovations or investment properties, you can actually use a top-up towards a number of different things.  

So, if you’re wondering, ‘What can I do with equity in my home?’ or ‘Can I use equity to buy a car’, we’ve pulled together a list of 10 things you can do with a home loan top-up.

What is a home loan top-up?

A home loan top-up involves increasing your existing home loan by drawing on your home equity. The amount you’re able to increase your loan by depends on how much equity you have in your property.

Unlike refinancing, which involves switching your current home loan to a new mortgage, with a home loan top-up your current loan product, loan features and conditions all stay the same.

When can you use equity in your home?

Before you apply for a home loan top-up, it’s important to make sure you’ve saved up enough equity. Equity is the property’s value minus the amount you still owe on your mortgage.

However, most banks and lenders will only let you borrow up to 80% of the current value of your home before they charge lender’s mortgage insurance (LMI). This is known as your useable equity. For example, let’s say your home is currently valued at $800,000 and you owe the bank $500,000. Based on these figures, you’d have $300,000 of equity. But when you take into account 80% of your current property value, that instead leaves you with $140,000 of useable equity.

When can you use equity in your home?

Before you apply for a home loan top-up, it’s important to make sure you’ve saved up enough equity. Equity is the property’s value minus the amount you still owe on your mortgage.

However, most banks and lenders will only let you borrow up to 80% of the current value of your home before they charge lender’s mortgage insurance (LMI). This is known as your useable equity. For example, let’s say your home is currently valued at $800,000 and you owe the bank $500,000. Based on these figures, you’d have $300,000 of equity. But when you take into account 80% of your current property value, that instead leaves you with $140,000 of useable equity.

Ways to use your home loan top-up

There are different ways to use a home loan top-up. Here are just a few examples.

Renovations and home improvements

Home loan top-ups can be used to upgrade or remodel your home to increase its value or enhance your living space. Use your equity to finance repairs, maintenance or improvements like adding a new room, upgrading the kitchen or landscaping.

Buy an investment property

You can use the funds from your top-up as a deposit for an investment property. By building a property portfolio, you can grow your wealth by generating a stream of rental income or taking advantage of capital appreciation over time.

Pay for your children’s education

You can use your loan top-up to pay for private schooling or higher education expenses for your kids. Your top-up can be used to cover the costs of tuition, textbooks and additional living expenses that come with completing a university degree.

Buy a new car

Have you ever thought about using your home loan to buy a car? Rather than taking out a separate personal loan with a high interest rate, you might want to consider adding a car loan to your mortgage in the form of a top-up. That way, you can use your equity to buy a car instead of slowly saving up to cover the cost of a new car. Or if a new car isn’t really your jam, you could put your funds towards a boat, camper trailer or caravan instead.

Go on your dream holiday

It can be difficult to save while also paying off your mortgage, which is why some people choose to use their equity to fund a trip away. Whether you’re keen to hit the slopes of Japan or enjoy a Euro summer, your next holiday could be sponsored by a home loan top-up.

Consolidate high-interest debt

If you have a number of other high-interest debts, it could be worth combining them into one manageable and lower-interest home loan. Not only can this help simplify your finances, but you could also potentially save on interest payments.

Start or expand a business

Whether you’re looking to start a new business or expand your existing business, it can be tricky to find the capital you need to invest. That’s where a home loan top-up can come in. Consider using your top-up to invest in equipment, inventory or marketing for your business. Just be sure to consider the risks associated with investing and running a business, if you are making this decision.

Create an emergency fund

It can be nice to know you have a bit of cash in the bank to fall back on if you need it. Create a financial cushion for unexpected expenses such as medical bills, job loss or urgent repairs. That way, you can maintain financial stability during emergencies without having to resort to high-interest credit.

Take advantage of other investments

You might want to consider using a top-up to diversify your investment portfolio to potentially grow your wealth. From investing in the share market to other types of investments, investing in a range of different assets may help to grow your wealth over the long term. Just be aware that investing also carries risk, and your investments could rise or fall in value.

Fund special occasions

You can use the funds from a home loan top-up to fund special occasions, like weddings, milestone birthdays and other important events. In some cases, this can be more cost-effective than taking out a high-interest personal loan to fund a special event. That way, you can stick with a single loan, often with a more affordable interest rate.

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Unloan is a division of Commonwealth Bank of Australia.

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.

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.

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.

There are no fees from Unloan. However, there are some mandatory Government costs depending on your state when switching your home loan. For convenience, Unloan adds this amount to the loan balance on settlement.

* Other third-party fees may apply. Government charges may apply. Your other lender may charge an exit fee when refinancing.