The Top-up Home Loan is becoming a favorite product in the banking industry in recent times. What is a Top- up Home Loan and how is it beneficial than a Personal Loan? Let us explore the reasons.
This example will simplify things for all. You have a Home Loan and are regular in repaying your in stalments. You need some liquid funds to renovate your home, or buy a car, or even fund your child’s education. You have two options. Either you opt for a Personal Loan or Apply for a Home Loan Top Up.
What is a Top-up Home Loan?
As the name suggests, a top-up home loan involves the topping up of the existing Home Loan. Banks, usually do not ask much questions while approving top-up Home Loans because they know your repayment record. If you satisfy the standard eligibility norms, banks are liberal in approving top-up Home Loans.
The difference between a Personal Loan and a Top-upHome Loan –
- The primary difference is in the rate of interest. Personal Loans are expensive thantop-upHome Loans.
- You provide collateral in the form of an extension of equitable mortgage of the existing house to cover both the Home Loan and the top up loan. In case of a Personal Loan, you do not offer any collateral.
- The loan tenure of a Personal Loan is for a maximum of 60 months whereas it can extend to 20 years in case of a Home Loan Top Up.
Apparently, you can see that the Top Up Home Loan is beneficial as compared to the Personal Loan or a Credit Card.
Prime Eligibility Criteria
- You have to satisfy the standard income criteria norms. Banks usually insist on take-home pay of around 50% after considering all deductions including the proposed one for the Home Loan Top Up.
- The Loan to Value (LTV) ratio should be around 70% to 80%. As the value of real estate appreciates over time, it should not be a problem for you to opt for a Top-upHome Loan.
The rate of interest is the primary advantage of a top-uploan. In the normal circumstances, banks charge interest at the Home Loan rate or maybe a percentage point more. In any case, it is much less than what they charge for a Personal Loan.
Benefits of Availing a Top-up Loan
- As long as you satisfy the eligibility criteria, the banks do not insist on knowing the end use of the funds.
- In a way, it is equivalent to a Personal Loan, but with collateral.
- In case you use the Top Up Home Loan for repairs and renovation to the house or for funding your children’s education, you can avail the benefit of income tax deduction as applicable to Home Loans and education loans respectively. The responsibility of proving the end use of funds lies with the borrower.
- The repayment period of a Home Loan Top Up can extend up to even 20 years or coincide with the tenure of the Home Loan depending on your eligibility. Thus, you get more time to repay this loan.
How Do You Apply for a Top-up Home Loan?
Usually, you approach your existing lender for a Top-upHome Loan. The reasons are obvious. Your lender has the title deeds of your property in its possession. It will be easier for you to extend the equitable mortgage to cover the prospective facility than to approach a new lender.
However, there is no problem in approaching a new lender as well. As long as you satisfy the eligibility criteria and maintain a good repayment record, banks adopt a positive approach towards Top-upHome Loans. They might ask for a valuation report of the property in case the current valuation is more than 3 years old. It is to ensure that they maintain the LTV (Loan to Value) ratio at around 70% to 80%.
As a matter of abundant caution, the banks might insist on the production of the encumbrance certificate.
Charges You Have to Incur
- The standard processing fees
- The additional stamp duty (if applicable) for extension of the equitable mortgage
- Registration charges for extending the equitable mortgage
Thus, you have seen that a Home Loan Top Up is any day beneficial as compared to other loans. They are not only cheaper but also readily available. Hence, the top-up home loan has become more popular today. You can use this option to fund your aspirations.
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