Multiple banks. Different interest rates. Call it a "conflict of interest".

    Top up Loan

    Let’s say that five years ago you had availed a home loan worth Rs. 50 lacs and the term of the loan was set at 15 years. Time has passed and the loan’s current outstanding amount is 35 lacs. It is now time for you to undertake major home renovations but do not have the required funds for the renovation. Your best option at the moment is a personal loan, or is it?

    Top-up loans are great options for individuals who have already taken a Personal Loan but require additional funds for any reason whatsoever. There are several benefits of taking a top-up loan, starting with a low rate of interest in comparison with personal loans. Tax benefits are also offered to customers who avail top-up loans.

    The Working of Top-up Loans

    The financial institution or bank that sanctions the top-up loan to a customer allows the customer to borrow a particular amount in excess of the home loan amount initially availed by the customer. However, there are a few conditions that apply. They are as follow:

  • The customer must have taken a home loan from the bank it approaches for a top-up loan.

  • Top-up loans can only be acquired after six to twelve months or after a predetermined number of years of pleasing repayment record so far as the home loan is concerned. Some banks may also have extra conditions with regards to the possession or completion of the house prior to sanctioning a top-up loan.

  • The permissible amount on a top-up loan is 70% to 75% of the property’s current market value minus the amount outstanding on your home loan. Hence, if the property value is Rs. 60 lacs and Rs. 30 lacs is the amount outstanding on your home loan, the top-up loan amount that can be availed is 15 lacs to 18 lacs.

  • Some banks have a condition where in the outstanding home loan amount and the amount availed through the top-up loan cannot exceed the initial home loan amount availed. In this case, the maximum amount that can be borrowed through a top-up loan is Rs. 5 lacs if the outstanding loan amount is Rs. 35 lacs and the original sanction amount is Rs. 40 lacs.

  • The initial home loan’s outstanding tenure is usually the tenor of the top-up loan. For instance, if there are seven years remaining on the home loan, the top-up loan’s tenor cannot be more than seven years.

  • The banks usually seek no extra security.

  • The terms and conditions of top-up loans are different with different financial institutions. However, the interest rates associated with top-up loans is usually 1% to 2% more than the rate of interest rate applicable to the home loan. Despite this, the interest rates applicable to top-up loans are significantly lower than those charged by personal loans. Also, banks don’t generally monitor the manner in which the customer uses a top-up loan, so customers are free to use the funds for vehicle purchases, child education, to repay personal loans, vacation, home renovation, etc.


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