A top-up increases your existing home loan with your current lender, while a refinance moves the loan to a new lender and borrows the extra amount at the same time. Both use your equity and both reassess your income. A top-up is usually quicker and cheaper to arrange; a refinance takes longer but can bring a sharper rate on the whole loan.

Which suits you depends mainly on whether your current rate is competitive, and on staying under 80 per cent of the property’s value to avoid lenders mortgage insurance.

How does each one work?

Top-up and refinance side by side
Top-up Refinance with extra borrowing
Lender Your current lender A new lender
Assessment Income and expenses checked again; property often revalued A full new application and valuation
Typical time Often a few weeks Often several weeks
Costs Usually a variation fee and any valuation Discharge fee on the old loan, new loan costs, registration fees
Rate Your existing pricing, or the lender’s current rate on the new portion A new rate on the whole loan, chosen from the panel

How much can you borrow?

Usually up to 80 per cent of the property’s value without lenders mortgage insurance, if your income supports the larger loan at a buffered rate. With a home valued at $1,000,000 and $550,000 owing, that is up to $250,000 more. The home equity calculator shows the figure and the borrowing power calculator checks whether the repayments fit.

When does a top-up make sense?

  • Your current rate is already sharp. If your lender’s pricing is competitive, there is little to gain from moving the whole loan.
  • The amount is modest and you want it quickly, for example to finish a renovation.
  • You are on a fixed rate. Refinancing a fixed loan can trigger break costs. A top-up, often as a separate split, leaves the fixed portion alone.

When does refinancing make more sense?

  • Your rate has drifted. If you have not been repriced in a couple of years, a refinance can lower the rate on the whole balance, not just the extra amount. The refinance calculator shows the saving after costs.
  • Your current lender says no or offers less than you need. Another lender may assess your income or property more generously.
  • You need a different structure, such as separate loans for an investment purchase, an offset account or a lender with different policy.

The refinancing guide and the refinance checklist set out the steps.

What is the money for?

Lenders ask, and the purpose matters. Renovations are usually straightforward; see renovation loans. An investment deposit is best drawn as a separate loan so the borrowing stays tied to the investment; see using equity to buy. Consolidating debts lowers the monthly total but spreads short debts over decades; see debt consolidation. For tax, the use of the money generally decides whether the interest is deductible, so speak to your accountant before mixing purposes in one loan.

A worked example

The figures are illustrative, at a 6 per cent example rate. A home valued at $1,000,000 has $550,000 owing. Borrowing a further $250,000 over 25 years adds about $1,611 a month to the repayments; borrowing $100,000 adds about $644. Over 30 years the same amounts add about $1,499 and $600. The lender tests the whole debt at a buffered rate, commonly around three percentage points above the actual rate, so an $800,000 total is assessed at a repayment of about $6,714 a month over 25 years, not the actual $5,154. That buffered figure, not the equity, is usually what limits how much extra you can borrow.

A worked example: is the switch worth it?

A borrower owes $550,000 at 6.50 per cent and wants $100,000 for a renovation. Over a 25-year term:

The same $650,000 loan, two routes, illustrative
Route Rate Monthly repayment
Top-up with the current lender 6.50 per cent About $4,389
Refinance and borrow the extra 6.00 per cent About $4,188

The refinance saves about $201 a month, about $12,000 over five years, before switching costs. If the switch costs $1,500, it pays for itself in under eight months. If the current lender will reprice to match, the top-up wins on speed and simplicity, so ask before you move.

How do the costs compare?

  • Top-up: often a valuation and a variation or application fee, sometimes neither. No discharge or new registration.
  • Refinance: a discharge fee to the current lender, government registration fees for the new mortgage, and any application or valuation fee the new lender charges, which are often waived for refinances.
  • Either: break costs if any part of the loan is fixed, so get them in writing first.

Why keep the loan purposes separate?

Whichever route you choose, put money for a different purpose in its own loan split. An investment deposit in its own split keeps the interest traceable for tax; renovation money in its own split shows exactly what the work cost. One combined balance is simpler to look at and harder to untangle later. Your accountant can confirm what suits your situation.

When is a top-up the wrong tool?

Home loan rates are low compared with personal loans, which makes topping up tempting for small, short-term costs. The catch is the term. $20,000 added to a loan with 25 years left costs about $129 a month at the 6 per cent example rate, and about $18,700 in interest over the term. The same $20,000 repaid over three years at the same rate costs about $608 a month and about $1,900 in interest.

If you do top up for something short-lived, such as a car, put it in a separate split and pay it off over the life of the thing you bought, not the life of the mortgage.

Questions people ask

Is a top-up cheaper than refinancing?

Usually cheaper to arrange, because there is no discharge or new loan setup. Over time a refinance can cost less if it brings a lower rate on the whole loan. Compare both in dollars over a few years.

Do I need a valuation to top up my home loan?

Often yes. The lender needs a current value to confirm the new total stays within its limits, usually 80 per cent of value to avoid lenders mortgage insurance.

Can I top up a fixed-rate home loan?

Usually as a separate split at the lender’s current rate, leaving the fixed portion untouched. Changing the fixed loan itself can trigger break costs.

Will a top-up affect my borrowing power for later?

Yes. A larger loan is assessed at a buffered rate, which reduces what you can borrow for a future purchase. Plan the order of borrowing if another purchase is coming.

How long does a top-up take?

Often a few weeks with your current lender, depending on the valuation and the documents. A refinance to a new lender commonly takes several weeks.

Charles Touma compares a top-up with your current lender against a refinance across a panel of more than 70 lenders, in dollars, before you choose. A free 30-minute call works out how much you can access and which route costs less. General information only, not credit or tax advice. Figures are illustrations at the stated rates, not quotes.

General information only, not credit, legal or tax advice. Your situation is assessed properly before any recommendation. Government scheme details change; figures are current at the time of writing.