Availing a home loan can be a good option when you do not have the desired fund but want to buy a house. A majority of people in India and all across the world avail home loans to own a home. Home loans are huge in terms of funds credited. A Home Loan Top Up is the one that is taken on the existing home loan from a bank based on the income of the borrower and repayment capacity. Most banks offer top-up loans readily to existing customers. The funds can be used for business-related and personal needs, a child’s higher education or business-related operations, including home renovation.
What is Home loan Top-up?
Top up means to add money to a loan, bank account, etc. to keep it at a constant or at an acceptable level. A top-up loan is a facility that is provided by financial institutions, banks, and housing companies that allows an individual to borrow a certain amount of money over and above the existing loan. Home Loan top-up can be availed if an individual has an existing home loan. An individual can get top-up either from the existing bank or can transfer the loan amount to another bank. The top-up amount depends on the value of the property mortgaged and the income of the individual. The top-up loan is not available to everyone who has availed a loan. Moreover, on an absolute basis, the maximum amount of top-up loan possible on a home loan is Rs.50 lakh.
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For example, an individual has borrowed a home loan of Rs.50 lakh for a tenure of ten years. After five years, the outstanding principal on loan is Rs.30 lakhs. Now, if there is a renovation in the house, the borrower can avail of a top-up loan to finance the renovation of the house.
Benefits of Home loan Top-up
If we compare Home loan top up with a personal loan and gold loan, it is much more beneficial. Some of the benefits are:
- Interest rate: Top up loan interest rates are generally 0.5-1% higher than home loan interest rates which are as low as 8.5%. If the top-up loan is compared to other loans, the rates will still be lower compared to other types of loans. Such low-interest rates of top-up loans make it the cheapest source of funds for the existing borrowers of home loans. Top up loans may also be used for debt consolidation.
- Tax Benefits: Tax benefits are availed for both interest and principal, depending upon the end usage of the funds. When the top-up loan is used for repair, renovation or alteration of the property, the borrower gets the benefit of tax exemption. The principal and interest which is repaid are eligible for tax benefits under Section 80C and 24b respectively when the loan is used for reconstruction or purchase of a new property.
- Loan Tenure: The tenure of a top-up loan depends on the remaining home loan tenure. Longer repayment tenure comes handy when availing a significant loan amount. The loan period can be a maximum of 30 years for a top-up loan.
- Purpose: The top-up loans do not have any precondition for the usage of the loan. The loan amount can be used for any purpose. The money can be used for home renovation, personal use, marriage expenses, education, etc.
The top-up loan can be availed by existing best home loan borrowers, only when they have paid the minimum number of installments according to the lender’s requirements. Top up loan outshines other loan options for its various lucrative features.