.gif)
.webp)
.svg)
A home loan occupies a significant chunk of your credit liabilities and has a long tenure for repayment – 10 to 30 years! So, once you have availed a sizeable amount as home loan, then dealing with the additional home renovation or improvement can be challenging in the limited salary. Personal loans have high interest rates, and it can get difficult to track and manage two separate loans.Here come home loan top-ups to the rescue! With the home loan top-up option, an individual can avail additional sum on the initial loan amount to reimburse additional expenses – renovation, remodelling, etc. This loan can also be availed from the existing home loan lender. Normally, a bank would allow a top-up loan amount of 60-70% of the current market value of the property. While in some cases it can also go as high as 80% of the current market value of the property depending on the credit repayment capacity of the borrower.
Pros & Cons of Home Loan Top-up
If you are planning to avail a top-up loan with your Home Loan , it is imperative that you educate yourself with the advantages and disadvantages of your decision.
Advantages of Home Loan Top-Up
- Fast Loan – As the bank already knows your repayment history and other personal credentials, no additional paperwork is required by the lender. Thus top-up loans can be granted instantly without any additional documents required.
- Low-Interest Rates – The major benefit of the top-up loan is that it can be availed at low-interest rates as compared to a personal or gold loan. The regular personal loan interest rates vary between 11-24%, but for a top-up loan, the interest rates are the same as home loan interest rates.
- Tax Benefits – Under Section 80C and Section 24 of the Indian Income Tax Act, the top-up loan provides added tax benefits on the money utilized on home reconstruction or renovation.
- Reliable Source – A top-up loan is a reliable financial source when additional cash is required. In case of urgent situations, it is a swift and trusted solution.
Disadvantages of Home Loan Top-Up
- Only for Home Loan Taker – This loan can be availed by the existing home loan customers only. Additionally, if a person has a bad credit history or default under the name, then a top-up loan can’t be availed.
- Hefty EMIs – By withdrawing additional money against the home loan, the standard EMI amount will also increase. It will be an added negative impact on the pocket.
- Limited – A limited fixed sum can be drawn under a top-up loan that varies from bank to bank.
Home loan top-up brings huge financial stability and positivity in a person’s life, but the negative aspect of the loan can’t be ignored. Thus, a person should mull over all the pros and cons of top-up loans before making a final decision.
FAQS - FREQUENTLY ASKED QUESTIONS
Is home loan top-up a good idea ?
Home Loan Top-ups can be a good source for getting credit when an individual is in need of funds. This is due to the fact that the borrower can easily borrow if they have an existing home loan running. The borrower can apply for the top-up home loan and get it approved without any hassle, provided his credit score is in check. Also, the interest rate on such a loan is nearly the same as on their home loan. So this is also a great benefit of top-up home loans.
What are the eligibility criteria for home loan top-up ?
While some of the requirements can vary for certain lenders and also depends on the credit repayment history of the borrowers, here are some common criteria for top-up loans:
Not more than 1 EMI bounce should be reflected in your loan account in the previous year.
If there was an EMI bounce, the same should be resolved before the next EMI was due.
6 months of clear repayment is required for an existing home loan.
The general criteria which also apply for home loans, apply here:
The individual should be a resident Indian or non-resident Indian
The individual should be between the age of 21 to 65 years
The individual should have a minimum annual income of Rs. 1 Lakh - Rs. 1.5 Lakh.
The individual should be a salaried or a self-employed person.
How much top up we can get on a home loan ?
The amount of top-up loan that one can get is usually up to 60-70% of the total property value. This loan amount is a total loan amount that also considers the remaining balance in the existing home loan. For example, Mr. A had taken a home loan on his property 6 years back which is currently valued at Rs. 50 Lakh. The initial loan amount was Rs. 30 Lakh and his current outstanding loan amount stands at Rs. 24 Lakh. So the top-up home loan that Mr. A can borrow is Rs. 11 Lakh. (Rs. 50 Lakh x 70% = Rs. 35 Lakh. And Rs. 35 Lakh - Rs. 24 Lakh = Rs. 11 Lakh)
What are the charges for a top-up loan ?
The charges on top-up home loans can vary from lender-to-lender basis. But usually, there is a processing charge of up to 1% on the top-up loan amount or a fixed minimum charge whichever is higher.
How much tax do we have to pay on home loan top up ?
No, you do not need to pay any tax towards the amount that you receive as a top-up loan as the amount that you receive is one kind of a loan that you have borrowed and not a kind of a receipt from any sources. However, you can reduce your tax liability as the amount of the loan; principal, as well as interest, is eligible for various deductions.
Does a top-up loan affect credit score ?
Top-up loans do affect your credit score in both ways; good and bad. If your repayment history with your top-up loan is regular and disciplined, top-up loans will help you improve your credit score. However, if you miss your EMI payment or delay it for any reason, it will negatively impact your credit score.
What is the difference between a home loan and a home top-up loan ?
A common difference between a home loan and a top-up loan is that a top-up loan is a loan that one takes over and above a home loan. You need to have an existing home loan for taking a top-up home loan.
Can we use a top-up home loan for personal use ?
Yes, you can use a top-up loan for personal use. Most lenders don’t usually limit the purpose of utilisation of the top-up loan just for expenses related to a property like modification, renovation, or interior designing of your house. The borrower can also utilise the amount for other personal purposes like education, medical emergency, or even wedding expenses. However, the borrower cannot utilise the amount of the top-up loan for speculative purposes.
The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.
