What Does The Term "Home Loan Top-Up" Refer To?

A home loan is a form of financial assistance attained from institutions like banks and housing finance companies to enable the purchase or construction of a house. These institutions, usually known as lenders, encompass this loan following a thorough evaluation of the applicant’s suitability

Furthermore, the eligibility of the precise property for which the loan is sought is also crucial. A top-up in a home loan is an added facility many lenders offer, allowing borrowers to attain a smaller supplementary loan alongside their current home loan. Read on to acquire all about the home loan top-up.

A home loan top-up refers to loans given by banks to existing home loan borrowers. While convinced banks impose conditions specifying that the top-up loan must be utilised wholly for home-related purposes, others may not execute such restrictions. Post the acquisition of a house, there might arise a need to undertake renovations, improve the interior decor, upgrade home appliances, or even rebuild the property, particularly in the case of individual bungalows or villas. To address such needs, the home loan lender may provide a smaller loan amount known as a top-up. This facility is available to existing home loan pledgers without any additional security or guarantee. The interest rates are similar to or somewhat higher than home loans, and it’s noteworthy that tax benefits can be claimed on your home loan top-up.

• Higher loan amount: Banks in India authorise a loan amount of up to Rs 50 Lakh through the top-up. However, it is subject to the unsettled home loan within the bank’s policy limits. 

• Extended repayment period: In contrast to a personal loan, a top-up offers a more extended repayment duration, permitting for a more manageable payback period, which can be protracted up to 20 years.

• Lower interest rate: With the interest rate on a home loan being lesser than that on a personal loan, choosing a top-up in case of an emergency is advisable.

• Swift processing: Procurement a top-up loan is quicker compared to other types of loans, as there is no added documentation or verification process, making the process more straightforward and faster.

• No additional security required: A top-up loan is applied over the existing home loan, eradicating the need for additional security.

• Multipurpose usage: A top-up loan can be used for various purposes, including weddings, renovations, education, or business schemes, provided the lender allows it.

The eligibility measures for a home top-up loan align with the necessities for the home loan provided by the particular bank. While specific conditions may differ between banks, vital points to consider comprise:

Ongoing home loan: The applicant must have an current home loan with the same bank offering the top-up. It is not conceivable to obtain a home loan top-up from a bank where the separate holds a home loan with another institution.

EMI bounce: There should not be more than one EMI bounce in the previous year. If any bounce arises, it must be strong-minded before the next EMI is due.

Repayment history: A clear reimbursement record of the existing home loan for at least six months is essential. In the case of top-up loans combined with balance transfer home loans from other banks, a clear refund history of one year is crucial.

Age: Between 21 to 65 years

Nationality: Resident Indian or Non-Resident Indian

Occupation: Applicable to both salaried and self-employed persons

The interest rates for the home loan top-up facility presented by lenders are generally similar to or somewhat higher than standard home loan rates. However, in most cases, top-up home loan interest rates are lower than the interest rates for personal loans given by the same lender. This lower interest rate not only significantly reduces Equated Monthly Instalments (EMIs) but also lowers the overall interest costs. Borrowers choosing top-up home loans can save meaningfully on interest expenses, making it a more cost-effective choice associated with availing of personal loans. Lenders determine top-up interest rates founded on factors such as the borrower’s credit scores and repayment history. Therefore, persons with existing home loans seeking funds for personal or business purposes can profit from choosing top-up home loans.

Tax benefits on home loan top-ups can be requested if the loan is wholly utilised for the renovation, construction, repair, or postponement of a residential property. The maximum deduction permissible is up to Rs 30,000 for a self-engaged home. In the case of a let-out property, there is no border on the deduction. But both scenarios fall under the overall total tax deduction of Rs 2 Lakh per year obtainable on the interest component of home loans.

If the top-up loan is working for constructing or purchasing a new property, the main and interest mechanisms are eligible for tax deduction, subject to limits set by Section 80C and 24(b). Yet, if the home loan top-up is focused towards the renovation, repair, or alteration of a residential property, only the interest section qualifies for the deduction, not the principal. To claim tax benefits, it’s imperative to retain receipts and documents about all the work carried out on the residential property subsidized by the top-up loan.

There are numerous approaches to applying for a top-up home loan, contingent on the bank from which you are looking for the loan. However, the characteristic ways to apply for a top-up loan include:

Visit the bank branch directly: You can call the division of the bank from which you have availed your home loan and apply for the top-up loan in person.

Apply online through the bank’s website: Appoint the official website of the bank and succumb your application online. Deliver your contact details, and the bank will subsequently get in touch with you to continue with the application.

Repayment tenure: The repayment tenure for a home loan top-up is characteristically capped at 10 years or the enduring tenure of the existing home loan, whichever is shorter. Some banks may spread the tenure to 20 years but within the bounds of the home loan tenure.

End-use restrictions: While a home loan top-up is versatile, permitting for various purposes, the funds must not be utilised for hypothetical, gambling, or illegal activities. It is essential to adhere to legal and principled usage.

Processing fees: Banks generally charge dispensation fees for home loan top-ups, typically extending from 1-2% of the applied top-up amount. The precise fee structure can vary among different banks.