Home Loan Top-Up: How is it a cost-effective alternative to a personal loan?

Financial planning | Feb 25, 2021 | 10 min read

As the name suggests, a top-up loan refers to the additional amount provided by the bank to an existing home loan customer. The amount is decided on the basis of customers’ credit score and their personal/professional needs. There is no need to mortgage any property to avail top-up loan and financing institutions do not impose any precondition for the usage of funds. Customers are free to use this amount for any type of requirement.

To avail a top-up loan the applicant must have paid some installments of the home loan. Defaulters on EMIs do not get a top-up loan easily and it also depends and varies from bank to bank. If some bank or financing institution refuses to give top-up amount, the applicant may also consider transferring the existing loan to another bank that is willing to offer the required amount.    

The concept of home loan top-up was started to assist existing homebuyers who are paying hefty amounts of home loan installments and have also exhausted their savings in the process of home buying. A top-up loan allow such individuals to avoid taking personal loan for any financial emergency or need including kids education, house interiors, or any other urgent requirement. Their good track record of repayment and repo with the lending institution also helps them with easy and quick disbursement of the top-up amount. This facility prevents people to borrow from family, relatives and friends or high interest rate financing schemes, which may bring more stress to them in future. In addition, the higher interest rates charged on personal loan can impact your monthly budget and expenses, as it becomes very difficult to pay two loans at the same time.       

Eligibility for top-up home loan

The lending institution or bank checks the past record of the applicant for repayment of the existing home loan. Once the checking procedure is complete the bank accepts the top-up requests from the customer and performs necessary documentation to sanction the additional amount. In case, the customer wishes to transfer the home loan to another bank then the new lender also conducts KYC formalities again.

The sanctioned amount under top-up scheme varies from bank to bank and terms of disbursing. Several banks consider that existing home loan dues and requested top-up amount should be in line with the total home loan approved originally, while keeping in view applicant’s current income and margin constraint. Some other financing institutions consider customer’s overall loan eligibility based on current income with a margin nearly 25%, based on existing value of the property purchased through home loan.    

Depending on the existing home loan amount, tenure left, and sanctioned top-up amount the maximum repayment time for top-up loan can be up to 15 years.

Important points to know about top-up loan

Quick disbursal

The bank process your top-up loan faster, as your profile details is already with them, without initiating any additional inquiry and tiring paperwork.   

Lower rate of interest

Compared to a personal loan where the interest rate may vary from 11-24%, the top-up loan can be availed on the same or slightly higher interest rates as home loan.

Genuine funding

When in urgent need, top-up loan also serve as a trusted source of funding, with consistent EMIs and no hassles.

Increased EMIs

Top-up loan facility is offered to only existing home loan customers, who have good credit score. Also the amount availed under this scheme is very limited. The top-up amount and subsequent interest rate incurred on that will also increase the monthly installment amount for the home buyers. 

Tax benefit on top-up loan

In case, a top-up loan is sought to buy a home, then the principal and interest amount both will be subjected to tax deductions under section 24 and 80C of the Income Tax Act. However, the loan taken for other personal or professional purposes will not come under the ambit of income tax benefits. But compared to personal loan interest rates a top-up loan is always a better alternative to fulfill your financial needs. A top-up loan can bring significant financial stability and positivity to an individual who need money. One should always conduct the right assessment of their financial needs and apply for a top-up.     

HomeCapital assists first-time homebuyers for paying the down payment, especially the young home buyers as they usually have lesser amount of savings to pay the margin amount. This amount can be repaid in 12 EMIs.      

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HCPL and it's partners reserve the right to reject any application at any time in accordance to its policies. To qualify, a borrower must be a Indian citizen and meet our financial partners underwriting requirements. To check for an applicant’s eligibility, our lending partner will request your full credit report from one or more credit bureaus. Not all applicants receive the down payment assistance. To qualify for the program, you must have a responsible financial history and meet other conditions. Assistance limits displayed are indicative, actual limits will depend on number of factors. If approved, your program assistance tenure will depend on a variety of factors, including down payment assistance amount, repayment capacity, a responsible financial history, years of experience, income, home-loan to value ratio and other factors.

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