Possibilities with Home Loan Top-Up

A top-up loan that creditors offer to their present customers. How is it better for you? Read to know.

A top-up loan incorporates a loan that you take over and above of existing loan. The existing loan can be either a home loan, a personal loan or any other form. Paying off your existing loan on time improves your chances of getting further demand for a top-up loan.

The most reasonable thing you are about to apply for is a home loan top-up since you have an existing relationship with the lender, and the clearance process is quick. You also don't have to go through the annoyance of filling out paperwork. The lender would already have your details; you may need to fill out a top-up loan form to get the required funds.

A home loan top-up uses for anything from buying furniture to building, extending or refurbishing your residential property. It is ready to exist for home loan borrowers with no collateral or guarantee requirement.

What are the advantages of a home loan top-up?

Fast processing and payment

Since you already have an existing personal loan with a bank or financial institution, the application process is faster. The loan amount is paid after verification is completed and is suitable for emergencies.

Minimal documentation

Documentation may differ from lender to lender. Some may not need any documents for home loan top-ups as the process has already been done during prior loan disbursement. However, other lenders may require the submission of minimum documents to process the loan.

Interest rates or fees

The Interest rates in home loan top-ups are less, and you can also take tax benefits for top-up home loans. The lowest interest rates for a home loan start at 7.10%, and the repayment duration is the same as for a housing loan.

The maximum amount may rely on the outstanding balance of the home loan or a particular amount specified by the bank. Actual processing fees might be up to 1% of the loan amount.

Duration of the loan

The duration of the supplementary loan may not exceed the period of the primary loan. You can choose a tenure equivalent to your current one or shorter.

No collateral is essential.

Since a top-up loan is an unsecured form of loan, you do not need to procure any security or collateral for the loan.

Consolidated EMI's

Some banks or financial institutions allow you to consolidate your EMI. It means you can merge the primary loan, home loan top-up amount and pay it in a single EMI. It allows you to manage your payments better because you don't have to recall separate payment dates.

No usage restrictions

You can use the home loan top-up amount for reasons like a medical emergency, business expansion, wedding or vacation.

Which loan is right for you: a Top-up or New loan?

Although both fulfil the same objective and have no restrictions on how to use the amount, there are some differences between them.

• Application procedure

  To apply for an instant personal loan, submit or upload the required documents. The lender will verify the submitted documents and check your eligibility. Once they specify your creditworthiness, the loan amount will get disbursed to you.

  The top-up loan verification and disbursement process are somewhat faster because you already have a primary personal loan with the lender. For an additional loan, the inquiry will get initiated to submit minimum documents depending on the lender's requirements. Eligibility is determined by looking at your repayment history and credit score, and once the lender ascertains this information, the loan gets disbursed.

• Interest rate and other charges

  For a new loan, the interest rate is relatively higher and varies with each borrower and lender. A person with a poorer credit score can get a higher interest rate than someone with a good credit score.

  Top-up loans may have a lower interest rate than an existing personal loan because the applicant already has a relationship with the lender. Most lenders also offer processing fee discounts on top-up loans distinguished from new loans.

• Documentation

  Comparably a home loan top-up requires fewer documents than a new loan, and the review process is also higher for a new loan application.

• Collateral or security

  Both types of loans are unsecured forms of debt and do not require any security or collateral from you. In the case of a new loan, however, if the creditor is not convinced of the applicant's financial stability, he may ask the applicant for collateral or a guarantor.

What are the tax benefits of home loan top-ups?

Tax benefits for home loan top-up can be applied if the loan got used just for the construction, renovation, expansion or repair of a residential property.

The maximum tax deduction available is up to Rs 30,000 if the top-up loan has been used for housing and the loan got used for a rented property, and there is no limit on the deduction. However, both come under the overall total tax deduction of Rs.2 lakh per annum accessible on the interest component of home loans.

Keeping receipts and documents for all work done on a residential property with a home loan top-up is crucial to claim tax benefits.

What are the eligibility measures for a home loan top-up?

The home loan top-up eligibility measures will be similar to the home loan criteria of the bank you are applying for or from which you have already taken a home loan, which may differ from bank to bank. Some of the crucial facts to remember are as follows:

• There should not have been more than one exit EMI in the previous year.

• If there is an EMI default, it should be paid off before the next EMI is due for six months of repayment of an existing home loan is expected.

• One-year clear repayment history is essential for home loan top-ups combined with balance transfer home loans from other banks.

• The general norms, which are the same for home loans, are as follows (which may fluctuate from bank to bank): Age: 21 to 65 years, Nationality: Resident Indian or Non-Resident Indian, Profession: Salaried or self-employed.

How to apply for a top-up loan?

There are many options to apply for a top-up home loan, matters on the bank to which you apply. Common ways to apply for a home loan top-up are as follows:

• Visit the branch of the bank where you took out the home loan and apply directly
• Visit the bank's website and apply online. Leave your contact details, and then the bank will contact you.

Factors to consider when evaluating a home loan creditor

Depending on the bank, if you are applying for a top-up from your existing home loan provider, it may get offered at a greater or lower interest rate than for existing customers. Do your research on this topic by comparing your bank's home loan top-up interest rates for existing customers with other banks for new customers.

Some banks give an extended tenure or the proportion of their home loan tenure to their existing customers. In contrast, others offer a restricted duration that is much lower than the balance on their home loan tenure.

Some banks offer existing customers a top-up home loan up to a limited amount, while others do not have such a limit, so choose the right bank according to your financial requirements.

Additional loans can be repaid early without any liabilities, regardless of which loan provider you use.

Conclusion

Applying for a home loan is the most logical solution for receiving the required funds for a new home. Nowadays, several lenders in India offer home loans at competitive interest rates.

If you find yourself in a circumstance where you need additional funds for personal expenses while paying back your home loan, you can use a top-up on the existing home loan from the same lender. Home loan top-up is a much more reasonable alternative to applying for a personal or credit card loan because it has lower interest and higher tenure.

When you buy a new home, you would possibly use the house, which is a vast financial responsibility. Loan repayment can take up a considerable portion of your monthly expenses. As you repay the loan, you may find yourself in a dilemma over the years where you may need a significant amount to cover your expenses. In such a situation, using a home loan top-up instead of applying for a new loan, which has a higher interest rate and a shorter repayment period, can be a great solution.