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Top up Loans enable customers to take out a loan in addition to their existing home loan. Customers who have already taken out a loan from a particular bank may apply for top up loan as non-banking and banking financial institutions both offer the same with a tenure of 15 to 20 years. Top up loans are a great way for borrowers to overcome their financial concerns regardless of the purpose of taking out the loan.
To be eligible for a Top up Loan, applicants are required to possess a decent repayment history. However, even if you meet the eligibility criteria, it is the bank/lender that ultimately decides whether or not you are eligible for a top up loan. The lender also investigates the reason why you are taking the loan in addition to running some verification checks to decide whether or not your application can be considered.
There can be several different reasons why an individual may want to take out a top up loan. Here are a few:
Tax benefits can be availed on top up loans provided the amount sanctioned by the lender is utilised for the purchase of a house (principle + interest). Tax benefits can also be availed if the funds are used to renovate your house. Tax benefits are not applicable to customers who use the funds for any other reasons apart from the aforementioned two.
The interest rates for top up loans are usually between 1.5% and 2% more than the interest rates of home loans, meaning that the ultimate interest rates for top up loans could range between 11.5% and 14%.
Most lenders grant top up loans to customers without requesting any asset as collateral owing to the fact that it has been sanctioned to you after you already took out a home loan with the bank. The customer’s documents are still with the bank, and even if the customer closes the initial home loan, they will have to close their top up loan as well prior to requesting their original house papers from the lender.
Usually, top up loans sanction amounts that are less than the value of the initial home loan. The upper limit is determined by the bank and generally ranges between 15 and 40 lacs. For instance, if you had taken out a home loan worth Rs. 25, 00,000, the amount of money you borrow on the top up loan cannot exceed that sum.
Most lenders charge processing fees before the approval of the loan. The processing charges are generally the same as the processing fees charged on their initial home loan. For example, if the processing fees charged on the initial home loan is 0.75% or Rs. 2000, the charges on the top up loan will be whichever more is.