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How a home loan increase could help you consolidate debt

Combining different personal debts into your home loan may make it simpler to manage repayments, but you need to make sure it’s appropriate for you.

If you have multiple personal debts, you may find it complex keeping up with different repayments.


Consolidating all your personal debt balances – personal loans, credit cards, car loans or Buy Now Pay Later debt – with a home loan increase is one way to streamline your debt and simplify your repayments.


What is a home loan increase?

A home loan increase (sometimes called a ‘top up’) involves borrowing against the equity you have in your property to increase your loan balance with funds you can use for other things.


People sometimes confuse a home loan increase with a home loan refinance, but they’re separate financial services and it’s important to understand the difference.


When you refinance a home loan, you create a whole new loan account with a different lender. With a home loan increase, you’re adding to the amount you’ve borrowed from the same lender, using the equity in your existing property as security. One thing in common between the two options is that both can help you consolidate your debts.

Why consolidate debt with a home loan increase?

There are a few benefits to combining several personal debts into a home loan.


Rather than managing many different personal loan and credit card accounts, consolidating debts with an increase means you only have to keep up with a single regular repayment and one interest rate rather than many.


Consolidating debts into one account also means you don’t have to pay several sets of account fees. Given that home loan interest rates are often lower than credit cards and personal loans, you might pay less overall in regular repayments on the debts you bring into your loan, which could help you free up cash for other things.

Are there any potential downsides?

There are several things to consider before combining personal debts with a home loan increase.


Keep in mind that doing this could extend the term on the debt balances you’re adding to your home loan. This would result in more interest charged over time, as home loan terms tend to be longer than other types of credit.


For example, a car loan might have a term of 5 years. Adding it to your home loan balance with a loan increase would extend the loan term of the amount you owe on the car to 25 or 30 years.


Similarly, a debt with no term – like a credit card – could be paid down whenever you have the available funds, but not if you consolidate its balance into your mortgage. In both cases, you may be paying a lower rate, but the total interest charges could be much higher for the same amount of debt.


Also note that if you consolidate debt with a home loan increase, you may still need to contact each lender separately and make sure you close the other debt accounts, so they don’t continue to incur fees.


Before you make a decision, make sure to tally up the overall costs, including any fees and new repayments, as well as the interest rate and charges you’ll be paying over the life of the loan.

How do I know if I’m eligible for a home loan increase?

You will only be eligible for a home loan increase if you have usable equity in your property. Equity is a word that describes your property value minus what you still owe on your home loan. If you’ve been paying down your home loan regularly or if the market value of the property has increased – or both – then you may have equity.


You can estimate the amount of equity in your home using our home equity calculator. Keep in mind that you won’t be able to access all the equity in your property – your lender will calculate how much of it you can borrow. At Westpac, we calculate your usable equity as 80 per cent of the total value of the property, minus the outstanding balance of your loan.


Keep in mind that usable equity calculations depend on how the bank currently values the property, rather than the value that a real estate agent will tell you. We will also need to take into account your broader financial situation, including your income, expenses and repayment history.


If your usable equity may be enough to consolidate your personal debts, then you might start to consider whether a home loan increase could suit you.

How does a home loan increase work for debt consolidation?

Once your loan increase is approved, the lender will use the loan increase amount to pay off the debts you want to consolidate – whether it’s within the same bank or with some other financial institution.


For example, say you have a credit card debt and a car loan with separate lenders, as well as a personal loan and home loan with Westpac. When you apply to consolidate debts with a home loan increase, Westpac will clear all the debt accounts for you and add the total amount you still owe on those debts onto your home loan balance.

Can I use home equity to create a separate loan?

The short answer is yes, you can.


If you don’t want to use your equity to increase your current home loan balance, you can instead use your equity to set up a new, supplementary loan account.


This option may allow you to choose different features to those on your current home loan. You might decide on a new repayment frequency, a new type of interest rate (such as fixed rate) and a new loan term for your consolidated debts.


Creating a separate, supplementary loan with your usable equity could help you set a repayment schedule to get pay down the debt balances that you’ve consolidated. Given that the supplementary loan term could be shorter than your home loan, this option could also help you pay the balances down faster. You might also end up paying less in interest charges on the debts you’ve consolidated than you might do with a standard home loan increase, again because of the shorter loan term.

How do I know if debt consolidation will help? 

To find out if debt consolidation is the right approach for you, you should consider getting independent financial advice.


If you are a Westpac customer and experiencing difficulty making your loan or credit card repayments, please call Westpac Assist on 1800 067 497.


Some of the ways we may be able to help Westpac customers include:


  • An extension of the loan term to reduce your repayments
  • An interest rate reduction
  • A short break on your repayments for a fixed period of time.


If you have any other questions about loan increases or debt consolidation, request a call back to talk to a Home Finance Manager about your options.


Things you should know

Credit criteria, fees and charges apply. Terms and conditions available on request. Based on Westpac's credit criteria, residential lending is not available for non-Australian resident borrowers.


This information is general in nature and has been prepared without taking your objectives, needs and overall financial situation into account. For this reason, you should consider the appropriateness of the information to your own circumstances and, if necessary, seek appropriate professional advice.