Thinking of topping up your mortgage?
You might have heard people talk about borrowing against their houses to buy a car, or putting a bathroom renovation “on the mortgage”.
Topping up a mortgage is a really common way to borrow money, particularly for homeowners who have built up good levels of equity in their homes, and when home loan interest rates are low.
Here’s what you need to know about mortgage top-ups.
What is a mortgage top-up?
A mortgage top-up is basically what it sounds like. You add a bit more to the amount you owe on your home loan, and use that money for the new vehicle or other purchase that you’ve been planning. The new bit of the loan is also secured against your house, in the same way as the rest of the mortgage. You pay the current home loan interest rate: you can usually choose whether that’s floating or fixed.
Who can get one?
To qualify for a mortgage top-up, you’ll need to have sufficient equity in your property. Since house prices have risen quickly lately, people who have owned their homes for a couple of years may already have some equity built in their home.
As for how much you can borrow, for most owner-occupiers, a lender could be reluctant to let you borrow more than 80 per cent of the current market value of your home. Lending rules introduced at the end of 2021 also mean that lenders have to be a bit more careful about approving top-ups. You might find you have to answer more questions than you expect about your current financial situation and why you want the money, so that the lender can apply the appropriate level of scrutiny to the loan’s affordability. You may even need to be ready to supply quotes, if you want to borrow to pay for home renovations.
Why is it a good idea?
People often like mortgage top-ups because they give them access to a much more affordable loan compared to most personal loans. And because you’re borrowing with your home loan lender, you also have an existing relationship so it can be less stress than trying to negotiate a fresh loan elsewhere.
Like to know more? Get in touch. We can help you understand your options in more detail.
Make sure you pay it back as quickly as possible
Keep in mind that even a low interest rate can add up over the long term. You’ll need to make sure you structure your top-up so that you pay it back quickly, otherwise a low rate can translate into high total interest costs over the long term.
It can be tempting to just increase your mortgage and pay it back over whatever term was remaining, but that could be a decade or more. A $10,000 loan at an interest rate of 4.5 per cent will attract $5,879 in interest if you pay it back over five years, but $18,801 if you just let it roll out over 15. You can ask your lender to structure it so that it’s a separate facility with a clear, short term. We can help you work through whether a mortgage top-up is an appropriate way to achieve your goals.
We’re here to help
A good place to start is with a call to us to help you work out what you might be able to qualify for. We’re here and ready to help you get the most out of your mortgage.
Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure accuracy and reliability, the information provided is subject to continuous change and may not reflect current developments or address your situation. Before making any decisions based on the information provided in this article, please use your discretion and seek independent guidance.