What is a top-up loan?
A home loan top-up can be the smartest financial move for you. It is more efficient in terms of interest cost as well as duration. Many borrowers are not aware of this class of loans and take a personal loan with a high rate of interest, with a difference of five-six percent in the interest rates.
Here’s a primer on top-up home loans:
What is top-up on home loan?
As the name suggests, a top-up home loan is an addition to your pre-existing home loan. If you are already in the process of repaying the loan and are doing it religiously, you can get the top facility by accepting the terms and conditions set by the bank.
Are you eligible to receive a top-up?
If one has taken a home loan then one is eligible to avail any top loan. However, you should be in the process of repaying your loan amount – at least for a period of one year or as specified in the documents. Only then does the bank consider your application for top-up.
Another most important point to note is that the bank provides additional loan facility only if you can mortgage the property in the name of the bank. Generally, the highest top-up loan amount sanctioned by banks on mortgage property is 75 percent but this percentage varies from bank to bank.
Top Loan Benefits
All-Purpose Loan : The best thing about a top-up loan is that it can be used for any purpose. Whether it is your business related need or some personal need, top loan is the answer for you.
Lower repayment cost : The same or lower interest rate you are paying on your existing home loan. For example, State Bank of India offers 8.3 percent on home loans. If top-up is availed, the interest rate is 8.4 percent.
No New Documentation : Since your documents are already with the bank, there is no need to reissue them. A top-up may only require some updates. For example, you may have to submit bank statements reflecting current loan repayments.
Easy approval : Top-up loans are also known for their easy approval benefit. Bank may not re-verify process and use previous documents to exchange loan.
Long Term : Top-up loans are available for longer periods, say 20-30 years. Loan procedures may vary from bank to bank. Some banks offer a top up loan for the remaining period of the existing loan. Some may offer for a 20-year or 30-year term regardless of the remaining term of the current one. And some may only be able to provide until age 70 or until the age when retirement begins.
Tax benefits : You can also avail tax benefits on top-up loans. However, you should use the loan amount only for home extension, renovation or educational purposes for yourself or your child.