What’s a home loan top-up and when should you consider one?
We all have times when we need to get our hands on a bit of extra cash. If you want to invest in property or renovate your home there are a few ways to access extra funds, depending on your financial circumstances and goals. You might choose to get a personal loan, use credit cards or refinance your home loan. Another option may be to increase the limit on your existing home loan – also known as a home loan top-up.
How is a home loan top-up different from refinancing?
When you refinance, you usually switch to a different loan, often with another lender. With a top-up, you keep the same home loan with the same lender, but you use the equity in your home to borrow more money.
There are a number of reasons why borrowers may choose to top up their home loan rather than refinance with a different lender, including speed, convenience and simplicity.
What to consider before applying for a home loan top-up
There are a few factors that will affect whether you can apply for a top-up.
- Previous conduct. Many lenders, including Bluestone, ask for six months of good repayment history before they approve a top-up. A history of late or missed repayments can affect your ability to increase your loan limit.
- The equity in your home. Equity is the difference between your home’s current value and the amount owed on your home loan. Lenders will calculate the loan-to-value ratio (LVR) – the ratio of the loan amount to the value of your home expressed as a percentage, to determine how much they may lend you. An LVR higher than 80% will likely mean you must pay lender’s mortgage insurance (LMI), although this is not the case with Bluestone. You will need to get a property valuation to determine your home’s current market value and how much equity you have available.
- How much you can afford to repay. When you apply for a top-up, you need to demonstrate that you can afford the higher repayments. Your lender will ask you to provide supporting documentation to prove your income, expenses and other debts.
Is there a cost to top-up my home loan?
There are costs associated with both topping up and refinancing your home loan. Here are some of the more common fees and charges included in a home loan top-up.
- Application fee. Depending on your current home loan, some lenders charge a one-off application fee.
- Lender’s mortgage insurance (LMI). Depending on how much equity you have available in your home and the amount of your top-up, you may have to pay LMI. This fee usually applies to borrowers who are borrowing more than 80% of the total value of their security property.
- Valuation fee. You’ll need to get a property valuation, which usually costs between $200 and $400.
The Bluestone home loan top-up process
So what should you do if you’re a Bluestone customer and you’ve decided to top up your home loan?
Here’s a quick rundown of the Bluestone top-up process (this can take up to six weeks).
- Complete our customer loan increase enquiry form here.
- Provide the requested information and one of our loan specialists will contact you. We’ll ask you a few questions to check your income and make sure you’re able to meet your new loan repayments. We’ll then email you an application form and a list of required supporting documents.
- Return the completed application form and supporting documents, and our credit team will assess your application.
Why do you have to provide additional documents if you’re an existing Bluestone customer?
Under responsible lending requirements, lenders need to make sure borrowers are able to meet their loan repayments without going into financial hardship. While we have your information from your first loan application, we need to make sure your circumstances haven’t changed in a way that would make it difficult for you to meet your new repayments.
The good news is once your application has been approved and you’ve returned your signed loan agreement, settlement is usually much faster than for a first time application – it can be as soon as the following day.
Want to know more?
To find out more about getting a home loan top-up with Bluestone, get in touch with us on 13 25 83 or complete our loan increase enquiry form.