There is very little doubt in the fact that everyone dreams of owning a house. For a vast majority of people, the best way to make this dream a reality is with the help of home loans. Even though a home loan is considered to be a financial liability, the sacrifices made to clear the debt is incomparable to the joy that comes with having your own home.
At the same time, this liability can also prove to be a blessing. Apart from the tax benefits a home loan EMI offers, you can also avail an additional loan on top of your home loan.
For example, consider that you have taken a home loan of Rs.40 lakh with a tenure of 20 years. 10 years down the line, you feel like renovating your house. However, owing to a shortage of funds, you may decide to take a personal loan to meet your renovation expenses. But before you do that, remember this - there is a better and cheaper alternative than taking a personal loan to finance your house remodelling.
Simply go to the lender you have borrowed from and ask for a top-up loan on your home loan.
Top-Up Loan is a financial product offered by housing finance companies, banks and leading financial institutions, that enables the customer to borrow a fixed sum, over and above the home loan they have taken with the lender. That’s why it is called a top-up loan.
The maximum amount one can get through a top-up loan depends on the lender. For HDFC Bank, the cap on the top-up loan amount is Rs.50 lakh, whereas, for SBI Bank, it is Rs.5 crore. However, as a general rule of thumb, the maximum top-up loan amount cannot exceed 70-75% of the current market value of the house minus the outstanding amount on the home loan.
For instance, the market value of your property is Rs.1 crore and the outstanding amount of the home loan is Rs. 50 lakh. Therefore, the quantum of your top-up loan will be between Rs.35 lakh - Rs.37.5 lakh.
A top-up loan can be taken by anyone who already has a home loan with a lender. They can either approach the same lender (the one they have the home loan with) or go to a different one. In the latter case, balance transfer of the home loan to the new lender may be required before opting for the top-up loan.
A few other factors are also taken into consideration by the lender while examining your top-up loan application. They are:
Top-up loans come with a broad range of advantages. These vary from low interest rates to long tenure, as seen in the paragraphs below.
If you are a home loan customer and are in need of additional funds, then it will be advantageous for you to select a top-up loan rather than a personal loan or gold loan. This is because interest rates offered on top-up loans are low when compared to personal loans.
If you avail a personal loan, then you may have to pay interest at a rate ranging between 10.65% - 21% per annum, whereas in the case of top loans, the interest rates may be slightly greater than the home loan rate but still significantly lesser when compared to personal loan. For example, if you choose to take a top-up loan with HDFC Bank, then the interest rate will vary between 8.40% - 8.90% per annum.
The tenure for a top-up loan varies from bank to bank and is greater than the repayment period offered on a personal loan. It is usually the outstanding period on the existing home loan, which can be 10-20 years, depending on the loan. Needless to mention, this is certainly an appealing alternative to personal loans.
Top-up loans come with absolutely no preconditions on usage. These loans can be used for any purpose, ranging from home renovation and personal expenses to fulfilling business requirements, marriage, education, et cetera.
Considering that a top-up loan is offered on top of the existing home loan (which already has the necessary collateral), no additional collateral is needed to secure the loan.
Top-up loans can be availed in absolutely no time since all the paperwork needed for the loan is already with the bank. However, you may have to furnish those documents once again. Furthermore, the lender would have already performed the necessary background check at the time of sanctioning the home loan.
If you are looking to apply for a top-up loan, all you have to do is visit your preferred lender. As mentioned earlier, if you are going to a different lender than the one you have your home loan with, then you will have to opt for home loan balance transfer before you avail the top-up facility.
Hence, as seen here, home loan top-up is a better way to get access to additional funds in the time of need, in contrast to other means like personal loans, gold loan, et cetera. It’s quick, efficient and comes with a very reasonable rate of interest.
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