In our life we borrow loans lot many times – smaller consumer loans, personal loans, car loan and a home loan. Yes, mostly we all borrow a home loan to fulfill the dream of owning a home for us, for our next generation. We want our family to safe and secure for their whole life and create an asset that gives them the feeling of security.
After serving a home loan for 10 or 15 years what if we feel a sudden need of money or our kids need money for their further studies or to fill the shortfall of a dream wedding of your daughter or funds for your son’s new business venture? You need money at that point of time and your friends suggest you to opt for personal loan or gold loan. But is it right choice for you? Will you be eligible as per your debts and age?
But here we can help you to look for an alternative that will suit your need and fulfill your need of funds. Instead of borrowing through loan against property (LAP), gold or a personal loan borrow by availing a top-up on your current home loan. Many of us are not aware of this category of financial product and opt to borrow personal loan which is available with higher rate of interest.
A top-up home loan is a multi functional loan that supports you for renovation, house extension, purchase of another property and even for personal use like financing for marriage, vacation, educational expenses or medical expenses etc. interest rates on home loan top-up is similar to the existing home loan and the processing fees is less or may be waived off in certain cases. A home loan top-up can prove to be the best move for you as it is quite efficient in terms of duration as well as interest.
Based on a comparison of the home loan top-up interest rates of all banks in India, the interest rates are in the range of 8.55% – 9.85%. The top-up rates are directly linked with the loan tenor and home loan interest rates
You might find it tricky to know whether you are eligible to avail a top-up loan or not? Actually, top-up over home loans depends on the property value, repayment track record and a healthy credit score of an existing customer. To avail a top-up loan customer should exhibit a regularity of repayment history for atleast 9 months to 1 year. Few Banks/ NBFC’s may provide top-up loans only on the completed residential projects and not over the under construction properties. Even the customers who opt for balance transfer can also avail a top-up loan from their new lender.
A new home loan borrower with an excellent credit history can also get an extra amount as a top-up by providing strong financial documents and the KYC documents. LTV (Loan to Value) is an important parameter to be considered to get a top-up loan approved.
If you think that you can get extra benefits in tax exemptions after borrowing a top-up loan, you may or may not be right completely because this is partially true. The interest paid or the top-up loans is eligible to claim a tax deduction under section 24b. But this is only applicable if the loan amount is used for construction, repair, acquisition or the renovation of the property. The maximum amount that can be claimed under tax exemption is Rs. 2 lakhs per annum and it includes the interest on original as well as the top-up home loan.
Home Loan Vs Gold Loan, LAP, Personal Loan
The other financial products such as personal loan, LAP or gold loan are beaten by home loan top-up because of the lower interest rates, higher tenor and tax benefits. The financial institutions charge an extra percent of 0.5-1% higher than home loans for giving top-up loans but still include the interest rates as low as 8.5% per annum along with higher tenor of up to 20 years. Let’s compare all the financial products
Advantages of Top-up Home Loan
Some key advantages of borrowing a home loan top-up are as follows:
Helps to meet financial need & Medical emergencies
The amount borrowed as a top-up home loan can be used to fund the personal, professional and even the business needs of the borrower.
Convenient documentation and approval
As the Banks/ NBFC’s/ Housing Finance companies give the top-up loans to their existing customers, hence, use the previous submitted documents for the further approval process. This leads the customer through the hassle free documentation process again.
Low interest rates; lower repayment
As mentioned above in the table, interest rates on the home loan top-ups are quite lower than the other financial products available in the market.
All the financial institutions provide top-up loans for a maximum of 20 years, depending on the credit history and the age of the customer.
One can avail an extra tax benefits on the home loan top-up amount in addition to what they are getting on their existing home loan.
One of the major drawback f the home loan top-up is that the loan amount borrowed is limited to the LTV of your existing mortgaged property. So, if a bigger amount is required, the customer has to opt for LAP at a slighter higher rate of interest. The processing time is higher as compared to personal or gold loan and the tax benefit can only be availed if the borrowed amount is used for the renovation purpose only.
With the above discussion and comparison between the home loan top-up and other unsecured loans, it is clear to opt for a top-up over your current home loan. This will help you to avail benefits with interest cost, duration, tax etc. and if you still have doubts the team of Mudra Home is always there to guide and help you to find the right choice.