HOME > BLOG > Refinancing > How a home loan increase works

After you have had your home loan for some time, you may find that you require more funds for other things. That’s where a mortgage increase comes in.

After you have had your home loan for some time, you may find that you require more funds for other things. That’s where a mortgage increase comes in.

If you have sufficient equity, most mortgage lenders will allow you to increase your home loan to fund other things. This is often called a “top-up” and allows you to borrow additional funds against the equity you have in your home.  You can then use this equity to fund other things. Some reasons home owners do this  include:

• Buying another property to use as an investment

• Renovations for your current property

• Consolidating debts

• Large purchases such as a holiday or car

So how does it work?

It is a viable option for anyone with an existing mortgage who has equity. Equity may have built up by contributiung a large chunk of your savings initially when you purchased the property, or you may have paid your loan down, or the value of your property may have increased. The amount you will be able to borrow will depend on how much equity is available as well as your own financial situation

A key part of the process is determining exactly how much equity you have. This is determined by getting a valuation done on the property by the lender. The lender will then have an up-to-date value to use to be able to work out how much you may be able to access. Generally, you can only increase your loan up to 80% of the value of the property, without mortgage insurance or up to 90% which would involve incurring mortgage insurance. To get an idea of how much your property is worth, you may need to do some research. The Free Property Report on our website is a good starting point. This will give you property price data for your suburb as well as a number of recent sales. Find properties that have sold that have similarities to your own, to give you an idea of what the valuer may value it at. If your loan is already with us we may be able to get an RP Data report on your property which will give an estimate of its value. Call our Lending Specialists on 13 72 62 to discuss this option.

If you are interested in taking out additional funds against your home loan, speak with your lender about what options are available. Depending on your lender, they may charge an establishment fee to cover the costs involved. 

When you apply, your lender may do a similar assessment as if you were applying for a new home loan to ensure you will be able to handle the increase in repayments. So, if you are planning to increase your home loan, make an effort to reduce any other existing debt as much as possible.

Just like all types of home loans, there are both pros and cons for top up mortgages. 


    • It can often be cheaper than taking out a personal loan or car loan as most home loan interest rates are lower

    • You will not pay interest on your loan increase until you actually draw the money to use      

    • You will only have one repayment to juggle rather than multiple debts with different repayments


There are some dangers with increasing your mortgage, the main one being that you are putting yourself in further debt. You should be looking to pay your home loan off not increasing it. Secondly, a mortgage is spread over a long time so even though the interest rate is cheaper than a car loan, if you only pay the minimum you will be in effect paying more in interest and spreading the cost of the car out over the remaining term of your loan which could be 20 to 30 years. 

The main thing is to have a plan. Get your mortgage lender to calculate how much extra you would need to pay each repayment to pay the increased amount off in a certain term. For a car for example this might be five years. You could also get the increase put in a separate sub account or split so that you keep focused on paying it off quickly. This way, after you have paid back the increase you are back to concentrating on paying off your original loan amount.

So, before you top up your mortgage, think about your financial situation now and down the track to ensure it is the best option for you. If the purchase can be put off, then saving the funds in advance and keeping it in an offset account may be an even better option.