Written by Jayant Upadhyay
Buying your dream home involves a substantial amount of monetary resources. If you have purchased a property through a housing loan, you might have had to spill all your savings to fund the margin money. However, the uncertainties of life might pose a sudden requirement of funds, while you’re also servicing the burden of an existing home loan. To deal with such situations, the ideal option is to go for a ‘top-up home loan.
What is a top-up loan?
A top up loan allows one to get an additional amount of money as a loan, over and above their existing home loan. This facility is extended to existing housing loan borrowers in order to finance their professional or personal requirements such as medical expense, home renovation or educational fees. Owing to an existent relationship between the lender and the borrower, one does not have to undergo the hassles of fresh documentation and other procedures.
Top up loans can be availed only by existing home loan borrowers who have paid a minimum amount of EMIs with a consistent payment track record. A few lenders may lend only against a completed residential property. Many lenders also permit top-up loans to those who have transferred and reassigned their loans to another lender. However, this would require going through documentation and KYC formalities for the new lender.
The maximum tenure of top-up home loans are the same as the outstanding tenure of the original home loan and can go up as high as 20 years.( Source: moneycontrol.com) The loan tenure is also dependent on the customer’s profile and his other existing EMI commitments. A top up loan tenure might even have a direct correlation with the residual life of the house. Top up home loans have a higher tenure in comparison to personal or gold loans.
Lower Interest Rate:
Interest rates on top-up loans are considerably lower than that of personal or gold loans. These interest rates are usually 0.5-1% higher than the home loan rates, and some lenders may also price their top-up loans at the same rates as home loans.
A combination of factors is taken into account for deciding the top up home loan amount. An individual’s income level, value of property and an additional 25% margin amount help assess his overall credit eligibility for the top up loan. Few lenders compare the aggregate of the proposed top-up loan and the outstanding balance of the home loan, to the initially sanctioned home loan amount, subject to margin and income level.
The interest amount under a top-up loan is allowed to be deducted u/s 24b of Income Tax Act if the loan proceeds have been utilized for renovating, altering or repairing the house property. If however the loan proceeds are utilized for purchasing or constructing a new property, both the principal as well as interest amounts qualify for Section 80C and Section 24b tax benefits respectively.
Top-up loan facts
|Eligibility||Only for existing home loan borrowers|
|Can use for||You can use it for education, marriage, tours and travels etc.|
|Cannot use for||Cannot use it for trading in shares or similar kind of activities|
|Tenure||Maximum tenure for repayment is 20 years|
|Interest rate||Top up loans interest rate in some cases higher than home loans, but less than personal loans|
|Processing Time||7 to 10 days approx.|