Home loan: What is a Top-Up Loan ?
Require money for home improvement or to fund marriage expenses, new car etc, then you can go for top up on existing home loan.
How does home loan top-up work ?
1.Tenure for top-up loan will be equal to tenure balance for existing home loan. For example for your existing home loan 14 years are balance out of original 20 years, then top-up loan will also have tenure of 14 years.
2.Interest rate charged on top-up will be slightly higher then that charged for regular home loans.
3.Top-up loan amount will depend on below conditions
Current value of your property.75% to 80% of your property value.
Your combined EMI for all loans should not exceed 50% of your salary.
Maximum loan you can avail will be equal to loan amount sanctioned for existing home loan.
4.Processing fee will be applicable for the top-up loan.
5.If loan is being availed for home improvement, then you may be required to submit quotations for the same.
6.Existing home loan should have completed six months and you should have good payment track record.
7.Top-loan can be used for any personal or professional reason like
Home improvement or home furnishing
Buying consumer durable or vehicle
To payoff other debts like personal loan or credit card loan.
Top up loan amount cannot be used for speculative reasons like trading in stocks.
Why Top-Up loan is better alternative compared to other loans ?
1.Lower interest: Interest charged on top-up home loan is far lower then that charged for personal loan and credit card loan.
2.Lower EMI : As tenure is higher and interest rate is lower the EMI for top-up home loan will be lower.Lower EMI will not only be lighter on your pocket, but it will also increase your max loan amount eligibility.
3.Higher loan tenure: For loans like personal loans the tenure is restricted to max 5 years. In top-up loan you can get tenure equal to tenure outstanding on existing home loan.
For example a Rs 10 Lac top loan for 15 year period at 9% interest will result in EMI of approximately Rs 10 thousand.At the same time a personal loan for 5 year period at 14% interest will cost you EMI of approximately Rs 23 thousand.
4.No pre-payment penalty is applicable on top-up loans.
5.Tax exemption: You can avail income tax exemption under section 80C, if purpose of top-up loan is home renovation or extension.