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What is a Top-up Mortgage?

By: Emma Eilbeck BA (hons) - Updated: 14 Jun 2010 | comments*Discuss
Mortgages Apr Finance Interest Rates

An increasing number of mortgage lenders are starting to offer what is know as top up mortgages. This does exactly what it says, it allows you to top up your current mortgage, so if you have a mortgage for £150,000, you may be able to take out a top up for up to £80,000, or more, depending on what your circumstances are. Lenders operate in different ways, so one lender might be able to offer you a larger percentage of your mortgage. Most top up mortgages will work in a similar way to a loan, so you will have an APR to pay over the course of the loan. Some lenders might take the repayments out of a separate account than the one your current mortgage payments come out of, so the APR may be different, while others will incorporate the two.

It may be that you want to top up you mortgage in order to buy a bigger property. Lenders will not normally refer to this as a top up loan, but it is better to check this with them. If you need more money to buy a property, they will normally be able to offer you a better deal by remortgaging. A lot of people will try to pile as much money into their property in their early years, and then use equity release in later life. A lot of people view their property as their pension fund, so it would make sense to build as much equity up in the property and then use equity release later on.

Interest rates on a top up mortgage will normally depend on what risk you pose to the lender. So if you are classed as what is known as a sub-prime borrower, meaning you already have outstanding debts, and have missed payments, then the lender is likely to lend you less money and at higher interest rates. If however, you have no missed payments and own a large amount of equity in the property then your arte will work out better.

Where to Get Top-Up Mortgages?

If possible, you should wait and enquire about a top up mortgage when it is time to remortgage. If you enquire before then and change your mortgage over, then your current lender will charge you an early repayment charge. Once it is time to remortgage you should talk to your current mortgage lender and your mortgage broker. It may be that your current mortgage lender does not offer top up mortgage, if this is the case you will have to remortgage with a lender that does. There shouldn’t be any problems involved in remortgaging with another lender, as long as you have the correct finance record and do not already have a large amount of debt.

What Top-Up Mortgages Cost

In the current finance climate, lenders are getting increasing cautious about whom they are willing to give mortgages to. At the moment, if you have any kind of blip on your credit rating, then the lender is going to be very dubious about extending your mortgage, depending on what you will use it for. You will need to prove to the lender that you can pay back and afford the monthly payments on top of your existing mortgage. The best candidates for top up mortgages are borrowers that own a large amount of equity in the property and has a clean credit rating. If you are typically taking the top up mortgage out to pay for home renovations or something like a new car, the lender might view you as less of a risk, compared to someone who is using the money to pay off any debts.

Top up mortgages are able to offer you a helping hand if you need a bit of extra money to pay for essentials. You shouldn’t think carefully about whether you need a top up mortgage and not take the decision lightly. Your mortgage payments will already be claiming a large chunk of your money, so it is important not to add to the debt if possible. However, if you do decide on a top up mortgage, make sure you talk to your mortgage lender or broker first, and that you already own some equity in your property, to get you the best deal possible.

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