Home loan: What is a top-up loan? Know how it can benefit you
It often happens that you might be already repaying a home loan but you need some more money for some unfinished work. The point is not to take a personal loan but to opt for a top-up loan since it has a significant benefit.
Kolkata: Those who buy a house or a flat these days can hardly do so without opting for home loans. Home loans are one of the primary growth engines since sale of dwelling units pull up the fortunes of a number of industries such as cement, bricks, steel, paints, electricals, home appliance, home furnishings and decor items etc. But it often so happens that while one has taken a home loan and has started repaying it, one realizes that some work is left unfinished and more funds are required.
Experts point out that in this situation, it is more prudent to opt for a top-up of the home loan than to rush for personal loan. There are solid reasons for it and the process also becomes simpler since one already has a loan which he/she is servicing. There is no need to go for a new loan and the bank that has sanctioned you the original loan can offer you a top-up home loan. Let's have a look at it works.
The money from top-up loans can be used for any work related to the house/flat -- renovations, interior renovations, home extensions. The point to remember is that one can use the money to the education of kids, medical expenses, weddings and sundry business needs. However, in some such instances some extra documentation coiuld be needed.
Top-up home loan works
As the name implies, top-up loan is given over and above an existing loan and, therefore, only those who has a loan running in a bank, or NBFC, can approach it for a top-up. Banks or Housing Finance Companies offer it only to their existing home loan customers. But here is a condition. The lender will check your EMI payment record before sanctioning a top-up loan. If you have a consistent and timely payment record for the past 12 months, the bank is not likely to hesitate. It will assess your property value once again and consider your application for a top-up.
Amount of top-up loan
This is a crucial question. The amount of a top-up home loan will depend on the current market value of the property and the loan-to-value (LTV) limit of the bank. The limit that most banks go by is about 80% of the current value of the property. Therefore, the amount of the total loan (= old + top-up) should not exceed that ceiling.
Why is top-up better than personal loan?
A top-up home loan has a lower interest rate than personal loan.
Personal loan interest rates are in the 10%-24% range.
Top-up home loan interest rates range are in 8%-11% range
Bank already has your details. Processing is easier.
However, one has to understand the EMI implication before applying for a top-up. The total debt that one has to repay will rise after opting for a top-up. The rate of interest is lower than a personal loan but one should check the total interest payable. Processing fees and documentation charges are applicable too.