You may have already invested in your dream home. Perhaps you have been paying equated monthly installments (EMIs) on the home loan for a long time. And, now you want to renovate or expand your dream home. It is in such a situation that a home loan top-up is useful. It is a facility provided by lenders to fulfill your dream with little financial help.
What is a Top Up Loan?
Top up Loan means adding an amount to your existing loan. If you have an existing loan with a lender and a good regular repayment history, you may apply for a top-up loan.
Let us take an example to understand what a top-up loan means:
Suppose, you have taken a home loan of Rs.60 lakh with a tenor of 10 years. Now, after five years if you are considering a renovation or extension in the house, you can consider a top up loan facility. The top-up loan will help you cover the extra expenditure.
Eligibility for Topping Up a Loan
Adding money to an existing home loan is not available to everyone. There are eligibility criteria for the same.
- Lenders check your past repayment history with the existing home loan.
- They will also assess your current ability to repay the additional loan.
Features of Top Up Loans
- Purpose: The purpose of taking a top-up loan can be anything. You may treat it as a personal loan. For instance, you could use it for home renovation, education expenses, investments, and so on. No one monitors how you spend the loan amount.
- Maximum Amount: The maximum amount you can top up differs among lenders. For instance, non-banking financial companies (NBFCs) like offer top-up loans of up to Rs.1.5 crore. However, the amount you receive will depend on your eligibility for an additional loan.
- Low Repayment Cost: Interest rates are generally lower than for personal loans or car loans. So, it is a cheaper alternative.
- Tenor: Top-up loans are available for the existing term of the home loan or for 10 years. The tenor of topped-up loans also tends to be longer than those of personal loans. This lowers the burden of paying a hefty amount as EMI.
- Minimum Documentation: Easy approval and balance transfer. As you are an existing customer with a good repayment history, the paperwork will be less.
- Tax Benefits: Tax benefits are available in some cases. But, this is possible only in case of home repair, extension, and to cover the cost of education for you or someone in the family.
But, do keep in mind the following points:
- A loan is a loan and you will have to repay it. A top-up loan and the applicable interest must be paid within the mentioned time frame.
- You can only avail a top-up loan from your existing lender.
- You may not get easy terms and conditions. So, do the calculations before availing a top-up loan.
Note: Many lenders offer home loan top-ups with a home loan transfer. But, compare the new housing loan interest rates with the old one. Also, look into the transfer charges, processing fees, and services available before opting for one. It may help you use a home loan EMI calculator before deciding to take a top-up loan.
The Process of Availing a Top Up Loan
The process differs among lenders. Some offer this facility to customers who have made repayments for six months. But, for some others, it is 12 months.
Start by applying for a loan top-up to your existing lender. Submit proof of income like salary slip and latest statement of repayment. Now, wait for the lender’s approval. The lender checks your repayment history, income, ability to repay, and so on. The process does not take much time though.
Topping up a loan is a good option. But, plan well and calculate your actual need before availing one.