Do you have a home loan and are in need of some extra money? There is a better alternative to getting a personal loan, gold loan or loan against property (LAP) — a top-up home loan.
“Generally, top-up home loans are given for home renovation or extension of home and for personal needs such as financing marriage, medical expenses or paying education fees, etc.,” said Sachin Chaudhary, Chief Operating Officer, Indiabulls Housing Finance.
Manav Jeet, Managing Director and Chief Executive Officer at Rubique said that his company already advises customers to go for top-up home loans, since the interest rate on them is similar to that on their existing home loan, and processing fees are less or waived off in certain cases.
Top-up home loan rates by some of the banks
Who is eligible for a top-up home loan?
“Existing customers are eligible for top up home loans depending on their property’s market value, repayment track record and a healthy credit score. They should exhibit a regular repayment history of minimum 9 months to 1 year (varies with financial institution) to get the benefit of a top up home loan,” said Harshil Mehta, Joint Managing Director and CEO, Dewan Housing Finance.
However, Naveen Kukreja, CEO and Co-Founder of Paisabazaar.com, cautioned that some lenders may provide top up loans only against completed residential properties, and not against under-construction ones.
“Existing home loan borrowers who have opted for home loan transfer may be offered a top up loan from the new lender,” he said.
New home loan customers are also eligible for top up home loans. An interested borrower needs to have a good credit history and should submit their know your customer (KYC) and income documents in order to
get their top-up loan processed by a financial institution.
“Loan-to-value (LTV) is also important parameter taken into consideration before approving the top-up loan,” said Chaudhary of Indiabulls Housing Finance.
Tax relief under Section 24b for top-up home loans
The fact that home loans offer tax benefits on repayment of both interest and the principal amount holds partially true for top-up home loans.
“For top up loans, interest portion repaid is eligible to be claimed as tax deduction under Section 24b, only if the top up loan has been used for acquisition, construction, repair or renovation of residential property. The total amount that can be claimed as deduction in a particular year is inclusive of the tax deduction claimed on existing home loan,” Kukreja said.
The maximum amount that can be claimed for tax deduction is Rs 2 lakh per annum for interest repayment. This is inclusive of the interest on both the original home loan and the top-up home loan.
Top-up Home Loan vs Personal Loan, Gold Loan, LAP
Top-up home loans clearly outscore other loan options such as personal loans, gold loans and loans against property. They come with a lower rate of interest rate, higher tenure, and tax benefits.
“For top up home loans financial institution charges interest rates 0.5-1 percent higher than home loans, which involve interest rates as low as 8.45 percent per annum. Also, top up loans provide longer loan tenures of up to 20 years,” Kukreja said.
Comparative table for illustration purpose
Advantages of top-up home loan
Mehta explained some of the key advantages of getting a top-up home loan:
– Helps meets financial needs and emergencies: Top-up home loans can be used to fulfill funding needs of the borrower, which include personal, professional and business expenses.
– Hassle-free approval and documentation: Banks or housing finance companies use the documents submitted to them earlier for the approval process, so there is no need to go through the documentation process again.
– Low interest rate, so low repayment cost: Interest rate on top-up home loans is lower than on other loan products.
– Tenure benefit: Financial institutions provide top–up loans for a maximum of 20 years.
– Tax benefits: One can avail tax benefits on top-up home loans in addition to the ones they are getting on their existing home loan.
“One of the major disadvantage of top up home loan is the loan amount is limited by the LTV of your existing mortgaged property,” Chaudhary said.
So, if an individual needs a bigger loan, he has to go for a loan against property at a slightly higher interest rate than that on a top-up loan.
“Processing time of a top-up loan is higher than a personal loan or a gold loan and tax benefit on a top-up home loan can be availed if the loan is taken only for the purpose of home renovation,” Chaudhary said.
Rubique’s Manav Jeet pointed out that some financial institutions have fixed capped the amount that once can avail through a top-up home loan.