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  • Top-Up Home Loan

    Top-up loans, as the nomenclature suggests, involves the bank topping up – adding to – your existing loan. So if you already have a home loan with a bank and you have been making regular repayments, then you can apply for a top-up loan. Many banks, private and nationalized, offer top-up home loans to their existing customers.

    Eligibility Criteria for Obtaining Top-Up Loans:

    To be able to get a top-up home loan, you have to:

    1. Have a home loan with the bank
    2. Be a regular and satisfactory repayment record for at least 1 year
    3. Make a valid mortgage in the name of the bank

    Features of Top-Up Loans:

    The following are the salient features of top-up home loans:

    • A top-up loan can be taken for any purpose – it need not be home improvement-related. You could treat it as a personal loan and use it for a vacation or wedding or to buy jewellery, or pay for the education expenses of yourself or your children, buy a vehicle, renovate your house, or invest it in the stock market – the choice is yours.
    • Top-up loans are available for up to 20 years or until the balance tenure of your original home loan, depending on the bank’s discretion. It also takes into account the customer’s profile, income, age, value of property, etc.
    • The maximum amount you can acquire as top-up home loans differs from bank to bank. While HDFC Bank offers you just Rs. 35 lakh, State Bank of India gives up to Rs. 5 crore. However, the total of the balance home loan amount and the new top-up loan amount should not exceed 70-80% (differs from bank to bank) of the value of the property
    • Top-up loans are available at interest rates similar to home loan rates, though it may be a few basis points higher than the original home loan rate. For example, SBI offers home loans at 9.4%, and top-up loans at 9.5% for up to Rs. 25 lakh.

    Benefits of Top-Up Loans:

    Here is why a top-up loan is better than taking a personal loan or maxing out credit cards:

    • Top-up home loan interest rates are quite lower than personal loans, credit cards or car loans. They are in the range of 9% to 12% in most banks, making them the cheaper option.
    • Top-up loans are also available for longer tenure than a personal loan, car loan or gold loan.
    • Top-up loans are easily approved and disbursed, since you are already a home loan customer of the bank and have been paying your EMIs regularly over the last 1 or more years.
    • Top-up loans can give you tax benefits. But this is possible only if you use it either for home repairs, construction or extension, or to fund your or your children’s education.

    Many banks offer Balance Transfer of Home Loan with Top-Up Loan. Consider the processing charges you’ll be paying on transferring the loan to another bank, the foreclosure charges you’ll incur with your existing bank, and the difference in the rate of interest. Even if the interest rate looks better, if the difference isn’t higher than 1%, then you’ll end up being the loser as you’ll end up spending more on the miscellaneous charges and save very little on the EMI. So analyse your options and choose the one that adds up well for you.

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