Prior to taking a home loan, prospective applicants spend a lot of time trying to weigh the available options and decide the right amount of loan for their requirements. However, at certain times during the tenor, people may occasionally need more money. In such circumstances, lending institutions provide their existing customers with a top-up loan on a home loan. This credit feature gives you access to high-value funds in no time to tide over a monetary crisis. If you are planning to apply for a home loan, a top-up can benefit you in several ways.
What Is a Top-up Loan on a Home Loan?
An additional sum of money obtained on top of your ongoing housing loan is known as a top-up. One may utilise this cash to cover any number of expenditures such as funding a family vacation, children’s education, home renovations, business needs or unforeseen medical costs. Availing a top-up may increase your EMI to some extent without putting undue pressure on your repayments. Thus, it is a more feasible alternative as compared to acquiring another loan when trying to handle extra expenses.
Benefits of a Top-up Loan on Home Loans
Choosing a top-up housing loan works to your advantage since most financial institutions provide attractive deals on house loans. Some of the merits of a top-up include:
Lower Rates of Interest
Secured loans such as home loans have lower interest rates. When you decide on a top-up loan, you automatically receive competitive rates although they may be slightly higher than your existing loan interest or even the latest home loan interest rate on offer.
Flexible Repayment Tenor
The repayment period on a home loan top-up is significantly longer than that of a personal loan or education loan. When you avail of a top-up, you can opt for the same tenor as your actual loan or a shorter duration. For example, if your home loan has a 20-year term, the top-up loan will also have a maximum tenor of 20 years and operate concurrently with the current house loan.
Higher Amount of Loan
Borrowers who have paid a particular number of EMIs and are consistent with their repayments can obtain easier approvals for a bigger top-up loan amount.
Quicker Processing
Faster processing of a top-up loan on a home loan is one of its main advantages. Some lenders even offer the convenience of a pre-approved top-up. A top-up housing loan application requires very little paperwork and eligibility evaluation since you already hold a credit account with the lender.
Income Tax Rebates
If the top-up loan is used for property purchase, construction, renovations or repairs, borrowers can claim tax deductions within the ambit of Section 24 (b) and Section 80 C of the Income Tax Act.
Eligibility Criteria for Home Loan Top-up
Normally, the eligibility criteria for a top-up loan will be similar to the basic housing loan eligibility criteria. Furthermore, a top-up also requires both salaried and self-employed individuals to meet the following qualifying standards:
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Borrowers should be present customers of the lending institution
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They must have repaid the original loan for a defined duration
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Individuals should possess a good repayment history with no late instalments or defaults
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Your income should support the surplus EMI
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You should have a good CIBIL score of 750 or above
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In the case of top-up loans combined with a home loan balance transfer from other lenders, a clear repayment history is essential
Documents Required for a Home Loan Top-up
Lenders usually ask for little documentation as they already have all your home loan documents and records. They might still require a few updated details pertaining to your earnings or other financials. When processing a top-up, they may simply request the following:
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Proof of identity such as Aadhar card, PAN card, driver’s license, etc.
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Salary statements or income details for the last 3 months
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Address proof like passport, utility bills and so on
Summing Up
A top-up loan on home loan is easy to avail and lets you borrow surplus cash against your present home loan. You can utilise this money for any number of sudden or planned commitments. However, if your lender does not offer this feature, you may need to consider a home loan balance transfer with another lender, who can extend better rates, and then select a top-up loan along with it. Before that, assess the actual benefits of switching your loan and the expected top-up amount as there may be various transfer fees or charges involved in addition to the application processing.
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