What Is Top-Up Loan?
Home loan top-up could be one of the smartest financial moves for you. It is more efficient both in terms of interest cost as well as duration. Many borrowers are not aware of this category of loan and end up taking personal loans which come with a higher rate of interest ─ there is a difference of five-six per cent in the rates of interest.
Here is a primer on top-up home loans:
What is top-up on home loan?
As the name suggests, top-up on home loan is an addition to your already existing home loan. If you are already in the process of repaying the loan amount and have been doing it religiously, you can avail of top-up facility by agreeing to the terms and conditions laid down by the bank.
Are you eligible to avail of top-up?
Anybody is eligible to avail of top-up loan if they already have taken a home loan. However, you should be in the process of repaying your loan amount back-- at least for a period of one year or as mentioned in documents. Only then the bank considers your application for the top-up.
Another most important point to be noted is that the bank provides additional loan facility only if you are able to mortgage a property in the name of the bank. Generally, the highest top-up loan amount allowed by the banks is 75 per cent over the mortgaged property but this percent varies from bank to bank.
Benefits of top-up loan
All-purpose loans: The best thing about top-up loan is that it can be used for any purpose. Whether it is your business-related need or some personal requirement, a top-up loan is the answer for you.
Low repayment cost: The interest rate is more or less similar to what you are already paying at your existing home loan. For instance, State Bank of India provides home loan at 8.3 per cent. If top-up is availed of over the same, the interest rate levied is 8.4 per cent.
No new documentation: Since your documents are already with the bank, there is no need for providing them again. Only some update might be required for the top- up. For instance, you may have to submit bank statements reflecting the repayment of existing loan.
Easy approval: Top-up loans are also known for their easy-approval benefit. The bank may not perform verification process again to disburse the loan and may use the previous documentation.
Longer tenure: Top-up loans are available for longer duration, say for 20-30 years. The tenure of the loan may vary from bank to bank. Some banks provide the top-loan for only the period outstanding for the existing loan. Some might provide it for 20 years or 30 years without considering the outstanding period of the existing one. And some might provide only till the age of 70 or up to the age when the retirement starts.
Tax benefits: You can also avail of tax benefits on top-up loans. However, you should be using the loan amount only for home extension, renovation, or for educational purpose for yourself or your child for that.