Borrowing a Further Advance for Your Mortgage

| December 10, 2013

Four Tips For Getting The Best Deal On a New Home

If you currently own a home which has increased in value, you may be eligible to take out a further advance from your lender. In effect, this means you’re borrowing more money although the terms and conditions will be different to your current mortgage. As this involves putting yourself further into debt, you’ll have to determine whether this is a smart option or not. You should also be aware of how you get approved for a further advance and how you can work out whether the repayments are affordable or not.

The Right Time to Extend Your Mortgage

First, you should always determine whether borrowing more money in this manner is even a worthwhile option. For example, some people may wish to use the value of their home to pay off other high interest rate debts, such as credit cards. While it’s true that you can leverage the low interest of a mortgage in this manner, be careful as the mortgage agent can repossess your home if you miss a repayment. Instead, you should only consider a further advance in certain situations in which the risk is minimal. These include:

  • Funding household renovations or improvements
  • Building the loan deposit for a second property

In this way, you will create value out of the extra borrowed money instead of simply using it to pay something off and using up that additional capital. The added credit will be well worth the interest rates and any other fees associated with it.

Approval Conditions for a Further Advance

You’ll also have to ensure your eligibility for this further advance. After all, a lender won’t just give money to anyone who approaches them. Instead, they will look for the following important qualities:

  • The equity in your property has significantly increased
  • You have a positive, stable credit background
  • You can comfortably afford the higher repayments

It is essential that you satisfy all of the above characteristics. In this way, you can talk to some Smartline mortgage brokers and borrow a further advance with confidence that you can safely pay everything back in the end. This is also in the best interests of the lender as they can then get their money back in the future.

Calculating What You Can Afford

The last eligibility condition mentioned above (ensuring you can afford the extra repayments) can be difficult to determine. The maths is a little complicated for some so we recommend that you talk with a local mortgage agent for further details. The following steps should help you through this process:

  1. Get your lender to clearly explain the lending conditions and scheduling
  2. Find out if you can borrow over a shorter term than your current mortgage
  3. Enquire about all additional fees and charges you may need to cover
  4. Use an online mortgage calculator to determine the monthly costs

Just remember that this is a long term debt obligation that has to be taken seriously. Talk to your home loan broker and calculate whether you can afford the repayments or not.  In this way, you can then agree to that further advance without putting your future financial situation at risk. You’ll be paying these debts back for quite a while so you should double and triple check the numbers before signing the contract.

This should provide some solid advice when it comes to borrowing a further advance in the future. With the information found above, you can make a smarter financial decision, tapping into your property’s increased equity while ensuring you can afford the resulting repayments. Stay safe when borrowing and you can then put your added funds to better use!

About the Author:

Operating through a network of more than 300 advisers, Smartline is one of Australia’s leading home loan and mortgage broker group. Find out more about Smartline mortgage brokers on their site.


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