All You Need To Know About Top-Up On Balance Transfer Home Loan

Whenever home loan borrowers thinking of moving to a lower home loan interest rate bracket, they think of 'Balance Transfer' of home loans. It is about shifting a running home loan from the current lender to a new one. It is believed that every home loan borrower must think of transferring the home loan to a new lender at least once in the entire tenure of the home loan.

It is good to come out of your shell and study the new deals being offered in the loan market, to see if there is anything that fits you better.

One such benefit is the 'Top-up' home loan on Balance Transferring your existing home loan.

MakaaniQ tells you more about top-up loans being taken on top of balance transfer home loans.

What is the purpose of top-up and balance transfer of home loans?

Balance transfer of existing home loan to a new lender is done with the motive to lower the cost of credit (mostly because of declining home loan interest rates). Top-up on balance transfer home loans comes as additional funds for meeting property expenses like repair, maintenance, extension or other contingencies.

What is the eligibility criteria for top-up and balance transfer home loans?

The basic eligibility parameters, processes, and calculations are the same of that of a standard home loan. Do not be surprised if the new lender asks for technical valuation of the property again. It is mandatory that balance transfer of home loans should assess the market value of the property (i.e. to meet the Loan-to-Value ratio norms). Also, a clean repayment track of at least six months (the term may vary from lender to lender), including the Pre-equated monthly instalments (Pre-EMIs) is mandatory.

The new lender will be ready to take over your home loan and provide additional funds only if you have paid all the primary home loan instalments on time.

How much top-up loan can be taken, on a balance transfer of home loan?

Top-up loan is provided only for properties that are ready for possession i.e. where the stage of construction of property is higher than 80 per cent, and registration in favour of the home loan borrower has been completed.

The top-up loan can be given up to 100 per cent of the primary home loan amount (i.e. the home loan amount disbursed by your previous lender). The combined value of the home loan and top-up will be considered for the Loan-to-Value (LTV) exposure.

Let us understand the top-up loan eligibility with an example.

Mr X had taken a home loan of Rs 20 lakh from ABC Bank Ltd in 2012. The current outstanding value of the property is Rs 18 lakh, and the present market value of the property is Rs 50 lakh.

Mr X wants to do the balance transfer for the outstanding amount of home loan with an additional top-up of Rs 25 lakh.

The loan eligibility based on the income level is Rs 30 lakh.

Top-up loan eligibility will be the least of the following: -

Maximum top-up loan amount that can be funded by ABC Bank Ltd. is Rs 20 lakh (i.e. 100 per cent of the primary home loan amount disbursed i.e. Rs 20 lakh, as mentioned above).

According to the LTV norms, ABC Bank Ltd. can fund up to Rs 40 lakhs (i.e. 80 per cent of Rs 50 Lakhs). The top-up amount can be up to Rs 22 lakh (i.e. Rs 40 lakh minus the outstanding home loan amount, which is Rs 18 lakh).

The top-up loan amount asked for is Rs 25 lakh.

The loan amount based on income is Rs 30 lakh.

The ABC Bank Ltd will fund a maximum of Rs 20 lakh as the top-up home loan amount.

What is the tenure for balance transfer and top-up home loan?

Most lenders restrict the tenure to residual primary home loan tenure. But then there are also the lenders who re-work on the Balance transfer with top-up loan facility tenure according to the norms subject to age, profile, repayment track and other credit norms.