In times of financial hardship, a top-up loan on home loan may be a lifesaver since it enables you to borrow money in addition to your current mortgage. The money from the loan may be used on anything from making repairs and getting your vehicle registered to purchasing new furnishings and parking equipment.
What is a Top-Up Loan?
To borrow more money in addition to one’s existing mortgage is to get a top up on home loan. This service is available to those who already have a home loan via a bank or credit union. It’s important to note that house loan terms might range from a few years to a several decades. Regardless of why more funding is needed, top-up loans provide a fantastic chance to overcome any and all financial obstacles. Since the lender has previously verified your home loan eligibility, a house loan top-up often does not need extensive paperwork.
The maximum available top-up on home loan amount differs from one financial institution to the next. The sum of the existing mortgage and any additional financing should never exceed 80% of the home’s worth.
So, say Mr. X purchases a house for Rs. 20 lakh with the help of a home loan. After repaying a sum of Rs 8 lakh, he wishes to acquire a top-up loan for personal purposes. Here, the amount of extra loan that may be provided to Mr X is just Rs 4 lakh (12+4=16) which is 80 per cent of the entire property value.
What are the Eligibility Criteria for a Top-Up Loan?
The eligibility criteria of top-up on home loan and a home loan are same and are mentioned below:
- In the last year, your bank statement should not have shown more than one EMI bounce.
- In the event of an EMI bounce, it is imperative that the outstanding payment be resolved prior to the subsequent due date.
- It is important to ensure timely repayment of equated monthly installments (EMIs) for a duration of six months.
General Criteria
- The applicant must be either an Indian citizen or a non-Indian resident.
- Their age must be between 21 and 65.
- They must be either salaried or self-employed.
How to Apply for a Top-Up Loan?
Each financial institution has its own unique procedure for requesting a top-up loan. Customers who have made regular loan payments for at least six months may be eligible for this service at certain banks. Nonetheless, there are many who advocate for a full year. A reliable payment schedule is essential in both circumstances.
The person seeking the top-up on home loan must submit an application form specifically for that purpose. Include your most recent pay stub and bank statement with your application. The money from the loan is typically transferred within 48 to 60 hours.
Pros and Cons of A Top-Up Loan
Pros
No limits on the Usage of the Capital
You may spend the money you get from a second mortgage on anything connected to your current home. A parking spot, home makeover, new furnishings, or travel expenses are all within reason.
Fast
The verification procedure for top up on home loan is fast and easy as well. Customers who already have a home loan do not need to submit all the documents again. They only need to submit the evidence of them submitting the emis of the home loan every month without any delay.
Low-Interest Rate
A top-up loan is an attractive source of capital since its interest rate is often lower than that of a personal loan. The interest rate might be anything from 9.5% to 13%, depending on the financial institution. Which is far lesser than the interest on the personal loan that is something between 15- 22 percent.
No Mortgage Required
A homeowner with an existing mortgage may get this second loan without providing any new collateral.
Cons
Only Applicable to Existing Customers
The major drawback of top-up loans is that only current house loan clients may apply for them. Customers with a low credit history also are not eligible to use this service.
No Tax Advantages
A personal top-up loan cannot qualify for any tax benefits. The tax break is only available for expenses directly related to home improvements or building projects.
No Impact on Capital Appreciation
A buyer may get a second mortgage if the first mortgage is still due after all payments have been made. The amount of the top-up loan will not grow regardless of whether or not the value of the underlying property rises.
How to Calculate a Top-Up Loan?
After estimating the remaining house loan debt, financial institutions determine the amount of the top-up loan. After taking into account preexisting debts, they arrive with an estimate for the Fixed Obligation to Income Ratio (FOIR) of the supplemental loan. Additionally, the rates that banks charge for top-up loans differ. Therefore, shop around for the best rate at many different banks before submitting an application.
You may quickly and easily acquire cash and cover any unforeseen expenses with a top-up loan. With a great history of on-time payments and a high credit score, you may be able to negotiate a lower interest rate on a personal top-up loan. If you have a personal loan that you have been paying on for a while, make sure to keep up with your payments. The aforementioned benefits and drawbacks should be carefully considered, and the whole business transaction should be analyzed, before any final choice is made.
Home Loan Rate of Interest
Hero Housing Finance offers home loans at a competitive interest rate of 9.50% per annum. These loans can be utilized for various purposes, including purchasing a ready property, constructing a new house on an owned plot, buying a plot for construction, or enhancing an existing residential unit. With a maximum loan amount of Rs. 5 crore and flexible tenures of up to 30 years for salaried individuals and 20 years for self-employed applicants, Hero Housing Finance makes homeownership more accessible.
Conclusion
In conclusion, a top-up loan can be a valuable financial tool in times of need, allowing homeowners to access additional funds for various purposes. The eligibility criteria for top-up loans align with those of a home loan, and the application process is relatively straightforward. While top-up loans offer benefits like flexibility in fund usage, a quick approval process, and lower interest rates compared to personal loans, they are limited to existing customers and do not provide tax benefits or capital appreciation. Careful consideration of these pros and cons is essential before making a final decision. Additionally, Hero Housing Finance offers competitive home loan rate of interest, making homeownership more attainable with flexible terms and a maximum loan amount of Rs. 5 crore.
