How Much Top-up Loan Are You Eligible For?
Are you an existing debtor who would like to apply for another loan? It does not matter whether your need is personal or professional. It does not matter whether you need money for renovating your apartment in India, or for your child's education. It is possible to get a loan, so long as your repayment record and the market value of your property are impressive. Needless to mention, banks also look into your ability to repay the loan.
MakaanIQ tells more you about top-up loans.
What is a top-up loan?
A top-up loan is a loan that a bank extends to an existing debtor. You do not have to go through the whole process again if you need additional funds, if you are already repaying your home loan. You can apply for additional funds on the existing home loan. This is called a top-up loan, which is just a quicker way to have access to more funds.
Reasons why people apply for top-up loans
Top-up loans can help you reach both personal and professional milestones. You can apply for top-up home loans to have access to more funds for your wedding, higher education, business expansion or even to renovate your property. You must always disclose the real reason for applying for a top-up loan, because there are many lenders who offer top-up loans exclusively for expansion, repair, maintenance, renovation and construction of properties. You cannot apply for top-up loans for speculative activities.
Are there lower and upper limits on top-up loans?
The lower and upper limits on top-up loans varies from bank to bank. The amount ranges from Rs 1 lakh (can be lower in some cases) to Rs 5 crore.
Are interest rates on top-up loans high?
Yes. Top-up loans are offered at higher interest rates, relative to home loans. Top-up loans are considered best replacements for personal loans (exceptions are there). Even when the interest rates on personal loans range from 13.50-16 per cent in the market, the interest rates on top-up loans range from 9.50-10 per cent. Interest rates on top-up loans also depend on the amount of money you expect the bank to lend to you.
How do banks calculate whether you are eligible for home loans?
You must remember than banks fund home loans based on the market value of the property. Banks lend 80 per cent or less of the market value of the property in India, if it is greater than Rs 30 lakh. Banks will offer you a top-up loan only if it is possible to extend more credit within the Loan-to-Value (LTV) framework i.e. if it is 80 per cent of the market value of the property or less.
You must also be credit worthy to bear the additional liability. Banks will calculate the top-up loan amount, after taking into account the Equated Monthly Instalment (EMI) of your running home loan. The bank will estimate the Fixed-Obligation-to-Income ratio (FOIR) for your top-up loan, after deducting the instalments of all your running obligations.
How long is the tenure period of top-up loans?
The tenure period of a top-up loan is always the residual period of the primary home loan account. Let us suppose that the tenure period of a primary home loan was 20 years and that your outstanding tenure period is now 18 years. The tenure period of your top-up loan will be 18 years, and not 20 years (Exceptions are made for special cases though).
Do you need secondary security for top-up loan?
You do not need secondary security for your top-up loan because the additional money is funded on the top of your primary home loan. Your property documents are still in the hands of the lender.
You cannot close your primary home loan account and ask for the original documents until you repay your top-up loan.
Do top-up loans make you eligible for tax benefits?
You are eligible for tax benefits on your top-up loan only if the money was ultimately used for purchasing property, renovating it, or for expansion or maintenance. You will not be eligible for tax benefits if you use it for other purposes.