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[MoreMore Insights] What is Top Up

Updated: Nov 1, 2022

Mortgage top up basically is to increase your existing home loan. The extra funds can be used for different purposes like buying a new car, renovating a house, or paying off a credit card. Usually, credit cards and personal loans have higher interest rates than home loans. Therefore, if the house has gone up in value then it is wiser to use it instead of taking out expensive unsecured loans.



Benefits of Top up


- There is no need to change the bank, which will save some refinance fees, and the processing speed is relatively fast;

- Consolidation of debt to a low rate home loan;

- Looking after one repayment is more efficient than servicing several different loans;

- Buying a new car or renovating a house with the top up amount;

- Opening an offset account and keeping the balance in there so you only pay interest on the amount used.


Drawbacks of Top up


- Increase in overall debt and possibly higher total repayments;

- There may be an establishment fee;

- The choice of loan products is relatively limited, and some preferential offers are not available to existing customers, like refinance cashback.



Cashing Out the Equity


Increasing the loan is only possible if you have additional equity in your property. The equity of the property is the value that you genuinely own in a property, which is highly dependent on the LVR percentage. Most lenders are not comfortable with loans over 80% of the Loan to Value ratio.



An example of the top up finance would be: A property valued at $1 Million with an outstanding loan balance of $500,000 would have usable equity of $300,000 - which is calculated by subtracting the current loan balance from 80% of the value of the property. Therefore, in this case, the owner of the property would be able to get $300k top up for his current loan.



Things to Consider Before Topping Up


1.Can your bank do the top up for the loan?


You may need to confirm with your loan institution whether your current loan type allows additional loans.


2. What is the equity of your property


Home equity refers to the difference between the bank valuation of your property and the outstanding mortgage balance. Only if your property value is increasing, there will be additional equity for you to borrow more.


3. How much repayment ability do you have?


If you increase the limit of the existing home loan, your repayment might increase as well. The bank will also ask for your latest income, liabilities and asset situations, to verify and confirm your repayment ability.


4. Top up or refinance?


How to choose between top up and refinance? What is the difference between top up and refinance? Contact Moremore Finance for more in-depth communication.

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