Everything You Need to Know About Top-up Loans on a Home Loan

While servicing an ongoing Home Loan, one could suddenly face an urgent requirement for funds. In such a scenario, a Top-up Home Loan can grant you faster access to much-needed cash. Most lending institutions sanction loan amounts based on a borrower’s eligibility. Furthermore, they offer Top-ups on their housing loan products at competitive rates of interest which are on par with regular Home Loan interest rates.    

What Are Top-up Loans?

A Top-up loan is akin to an extra loan that can aid in effective Home Loan management. It is tendered over and above the existing Home Loan or any other loan. A top-up home loan is extended to customers who possess a good credit score and repayment abilities. It may be availed for various purposes such as home furnishing/renovations, children’s education, weddings, medical emergencies and more. 

How Does Home Loan Top-up Work?

A Top-up loan works much like a mobile recharge when one is low on balance. Likewise, lenders proffer a loan that tops up your ongoing housing loan balance. For example, you may have a Home Loan of Rs. 80 lakh for a period of 15 years, and after 5 years the outstanding loan stands at Rs. 56 lakh. At this point, if you wish to undertake major repairs/renovations of your house, you can consider a Top-up facility instead of securing another loan for the required money.  

Features of Top-up Home Loans

Top-up Home Loans come with several beneficial features such as: 

Competitive Interest Rates

Top-up loans usually have interest rates similar to existing Home Loan rates, or they may be a few points higher than the original loan rates. Even then, Top-up interest rates are comparatively lower than the rates of unsecured loans.  

Flexible Tenors

The repayment period of a Top-up loan is much longer as compared to options like personal loans, car loans or gold loans. It can extend up to 20 years, depending on the maximum tenor offered by your lender. It might even stretch as long as your current home loan tenor.  

Unrestricted Fund Usage

There is no restriction on the use of top-up funds, although some lenders might limit the loan spending to housing needs only. Hence, one can utilise the cash to address any sudden or planned financial commitment.  

High Loan Amount

The maximum Top-up loan amount availed on a home loan can vary as per the lender’s policies and discretion. Generally, the net balance does not exceed 70%* - 80%* of the property’s value against which the original house loan was availed.  

Tax Savings

One can enjoy tax exemptions on Top-up loans provided they are acquired for home-related purposes. Borrowers are entitled to income tax benefits if they can submit some proof of purchase, construction or repair of the residential property through receipts and relevant documents.  

Section 80 C and Section 24 (b) of the Income Tax Act contain provisions for tax deductions on Top-up loans. A rebate of Rs. 30,000 is available on the interest payment of the loan, which may be secured for the repairs or alterations of a self-occupied house. However, there is no cap in case of a rented property. One can claim these exemptions on the interest component of a Top-up loan.   

Also Read: Know all About Top Up Loans and How to Avail of Tax Benefits 

Eligibility Criteria for a Top-up Loan

The Top-up loan eligibility parameters on a Home Loan may differ among lenders but the usual requirements are: 

• The applicant should be between 21 and 70* years of age.  
• Salaried as well as self-employed individuals are eligible for a Top-up loan. 
• Interested applicants could be residing Indian citizens or non-resident Indians. 
• Salaried employees should have a minimum work experience of three years*; while self-employed individuals must show business continuity of at least five years in the current enterprise.  
• Borrowers must hold a good repayment record with six months of clear repayments on the current Home Loan. 
• They should possess an excellent credit report and CIBIL score of 750 and above.  

Benefits of Top-up Loans

A Top-up on your Home Loan extends the following advantages: 

• A Top-up allows you to meet any personal or housing requirement. 

• It entails minimal documentation.   

• Since you already have an existing house loan, the application process and eligibility parameters are less rigid. 

• Top-up repayments are relatively easier due to lower interest rates and flexible tenors. 

How Can You Apply for a Top-up Loan?

Although every bank and financial institution may follow a different application process, the common procedure includes: 

• Visit the branch of your preferred lender and apply for the Top-up directly through the representatives. You must fulfil their eligibility criteria and furnish requisite documents as asked. 

• Alternatively, one can also visit the lender’s website and submit the application form online. Later, their representative will contact you and guide you through the complete process.  

To Conclude

Top-up loans are easy to avail, but one should take up this credit facility only when absolutely essential. If your lender does not offer this feature, you may consider a home loan balance transfer and choose a Top-up along with it. Prior to that, individuals should ideally weigh the practical benefits of switching lenders and estimate the expected Top-up amount through user-friendly tools like a Home Loan Balance Transfer Calculator and a Top-up Loan Calculator respectively.  

*Terms and conditions apply.