The Wealth Whisperer
Should you be topping up your home loan?
A common question I would get asked when working in the banks is ‘Can I top up my home loan to buy a car?’
While the answer for most lenders is yes, the real question is, should you be topping up your home loan to buy a car? It’s all in the maths.
A standard home loan of $500,000 with an interest rate of 6% over 25 years has a total interest charge of $466,453. You want that new car for $70,000 and decide to top up your home loan to pay for it. This brings your loan total to $570,000, with a total of $531,756 interest charged over 25 years.
Essentially, this new car of $70,000—which starts depreciating the second you drive it off the lot—has now cost you $135,303!
While compounding interest works in your favour in some cases, in this instance, it works against you. Is the new car really worth that much? Is topping up the home loan your only option to get that lower rate?
I’m happy to tell you that no, it’s not your only option with most lenders.
You can do an equity release loan, which means you still use the property as security, but you can take out a $70,000 loan separately from the main mortgage and pay it off over a shorter period. As an example, if you were to take it out over a 5-year period, the interest charged would be $11,198, meaning the total cost of the car would be reduced to $81,198.
This amount still means that you’re paying more for the car than it’s worth, but if you’re really strapped for savings and need an updated car, this is a more cost-effective option to consider.
What if I was to make extra repayments on the loan though?
Great question! But take a moment to check in with yourself and ask if that’s something you would actually do. If you haven’t been able to save for the car, what makes you think you’ll magically find the money to pay off the loan?
It’s important to always question whether that new thing you want, which you can easily add to your home loan, is worth risking your home over. Perhaps it’s time to consider ways to save more instead.
Disclaimer: The above calculations are for informational purposes only, based on the examples given, and may not include all fees and charges associated with home loans. Different terms, fees, or loan amounts will result in a different calculation.
Should you be topping up your home loan?
A common question I would get asked when working in the banks is ‘Can I top up my home loan to buy a car?’
While the answer for most lenders is yes, the real question is, should you be topping up your home loan to buy a car? It’s all in the maths.
A standard home loan of $500,000 with an interest rate of 6% over 25 years has a total interest charge of $466,453. You want that new car for $70,000 and decide to top up your home loan to pay for it. This brings your loan total to $570,000, with a total of $531,756 interest charged over 25 years.
Essentially, this new car of $70,000—which starts depreciating the second you drive it off the lot—has now cost you $135,303!
While compounding interest works in your favour in some cases, in this instance, it works against you. Is the new car really worth that much? Is topping up the home loan your only option to get that lower rate?
I’m happy to tell you that no, it’s not your only option with most lenders.
You can do an equity release loan, which means you still use the property as security, but you can take out a $70,000 loan separately from the main mortgage and pay it off over a shorter period. As an example, if you were to take it out over a 5-year period, the interest charged would be $11,198, meaning the total cost of the car would be reduced to $81,198.
This amount still means that you’re paying more for the car than it’s worth, but if you’re really strapped for savings and need an updated car, this is a more cost-effective option to consider.
What if I was to make extra repayments on the loan though?
Great question! But take a moment to check in with yourself and ask if that’s something you would actually do. If you haven’t been able to save for the car, what makes you think you’ll magically find the money to pay off the loan?
It’s important to always question whether that new thing you want, which you can easily add to your home loan, is worth risking your home over. Perhaps it’s time to consider ways to save more instead.
Disclaimer: The above calculations are for informational purposes only, based on the examples given, and may not include all fees and charges associated with home loans. Different terms, fees, or loan amounts will result in a different calculation.
Copyright © 2025