What are the options to upgrade your family home?

Upgrading to a larger family home means borrowing more against a property you already own, and the loan structures available to you now are different from the ones you used as a first buyer.

The decision most families face is whether to refinance their existing loan to increase the amount borrowed, or to take out a separate top-up loan while keeping the current mortgage in place. Each approach affects your repayments, your access to equity, and the features you can use.

Understanding how much you can borrow when upgrading

Your borrowing capacity is assessed on your current income, existing debts, and living expenses. Lenders use a serviceability buffer of 3.0 percentage points above the loan product rate, meaning your application is tested at a rate higher than what you will actually pay. If you are applying for a loan with a debt-to-income ratio of six times your gross income or more, some lenders may decline the application due to lending limits that took effect in February 2026. Those limits do not apply to all lenders, and a broker can identify which institutions have capacity to lend at higher ratios.

Consider a family in South Perth looking to move from a two-bedroom unit to a four-bedroom home closer to schools and parkland near the foreshore. They have $180,000 remaining on their current loan and the unit is now valued at $620,000. They want to purchase a home valued at $950,000. Their combined household income is $165,000, and they have no other debts. At current variable rates, their serviceability is assessed at a rate around 9.0 per cent, which allows them to borrow up to approximately $780,000. After selling the unit and clearing the existing mortgage, they would have around $440,000 in equity to use as a deposit, bringing the required loan amount to $510,000. This sits comfortably within their capacity and avoids LMI.

Refinancing versus taking out a top-up loan

Refinancing replaces your existing home loan with a new loan for a higher amount. The full loan is assessed under current lending criteria, and you can access updated loan features such as an offset account or redraw facility if your current loan does not include them. Refinancing may involve discharge fees from your current lender and application fees with the new lender, though many lenders reduce or waive application fees during promotional periods.

A top-up loan keeps your existing mortgage in place and adds a second loan secured against the same property. This can be useful if your current loan has a low fixed rate that you do not want to break, or if your original loan includes features or discounts that would be lost through refinancing. The top-up loan is a separate contract and may have a different rate, term, and repayment structure from the original loan. Not all lenders offer top-up loans on existing mortgages, and some will only provide a top-up if the original loan was taken out with the same institution.

What happens to your equity when you upgrade

Equity is the difference between your property's current value and the amount you still owe. When you sell your current home and purchase a larger one, the equity from the sale becomes your deposit for the new property. If your equity is less than 20 per cent of the new purchase price, you will need to pay LMI or use a government guarantee scheme such as the Australian Government 5% Deposit Scheme, though that scheme is limited to first home buyers and does not apply to those upgrading.

If you are keeping your current property and purchasing an additional home as an investment, the equity in your existing property can be accessed through refinancing or a separate equity loan. The new property is then purchased using that equity as a deposit. This approach requires careful attention to loan structures, as mixing owner-occupied and investment loans on the same security can create tax complications.

Choosing between variable, fixed, and split loan structures

A variable rate loan allows you to make extra repayments without penalty and gives you access to an offset account, which reduces the interest charged on your loan by offsetting the balance in a linked transaction account. Variable rates move with the market, so your repayments can increase or decrease over time.

A fixed rate loan locks in your rate for a set period, typically between one and five years. Repayments remain the same during the fixed period, which can help with budgeting, but you may face break costs if you repay the loan early or sell the property before the fixed term ends. Fixed rate loans generally do not include offset accounts, and extra repayments are often capped.

A split loan divides your borrowing between a fixed portion and a variable portion. This gives you some repayment certainty while retaining access to flexible features on the variable portion. The split can be structured at any ratio, such as 50/50 or 70/30, depending on your preference.

How offset accounts reduce the interest you pay

An offset account is a transaction account linked to your home loan. The balance in the offset account is subtracted from your loan balance when interest is calculated each day, which reduces the amount of interest charged without requiring you to make extra repayments into the loan itself. The full loan balance remains available for redraw if your loan includes that feature, and you retain access to the funds in the offset account for everyday expenses.

Offset accounts are available on variable rate loans and on the variable portion of split loans. They are particularly useful for families who want to reduce interest costs while keeping savings accessible for school fees, medical expenses, or other short-term needs.

Structuring your loan to keep renovation funds accessible

If you are purchasing a home that requires renovation or extension work, you may want to keep a portion of your borrowing separate so that funds can be drawn down as the work progresses. A line of credit or construction loan facility allows you to borrow only the amount you need at each stage, rather than drawing the full loan amount at settlement. Interest is charged only on the amount drawn, not on the full approved limit.

Construction facilities are commonly used for major renovations and extensions, particularly where council approval and building contracts are involved. The loan is drawn in stages as progress claims are submitted by the builder, and the lender will usually require a valuation and inspection at each stage before releasing funds. More detail on how these facilities are structured can be found on the construction loans page.

Portable loans and what they mean for upgrading

Some lenders offer portable loans, which allow you to transfer your existing loan to a new property without refinancing. This can be useful if you have a low fixed rate or favourable loan terms that you want to keep. Not all loans are portable, and even where portability is available, the lender will reassess your serviceability and the new property's suitability as security. If the new property is valued higher than your existing loan amount, you will need to borrow additional funds, which may be provided as a top-up or second loan rather than a single consolidated loan.

Portability does not eliminate settlement timing risks. If your sale and purchase do not settle on the same day, you may need bridging finance to cover the gap, which involves additional interest costs and fees.

What to bring when applying for pre-approval

Lenders assess your income, expenses, assets, and liabilities before providing pre-approval. For employed applicants, this includes payslips for the most recent two pay cycles, two years of tax returns if you receive bonuses or commissions, and recent statements for all bank accounts, credit cards, and existing loans. Self-employed applicants are generally required to provide two years of business financials and tax returns, including a profit and loss statement and balance sheet.

Pre-approval confirms the amount you can borrow and the loan structures available to you, but it is not a formal loan offer. The lender will complete a full assessment once you have signed a purchase contract, including a valuation of the property you intend to buy.

Call one of our team or book an appointment at a time that works for you to discuss your upgrade and get your loan structure right from the start.

Frequently Asked Questions