home loans

Purchasing a long-term asset requires substantial investment. So, to purchase a dream house, individuals usually rely on home loans. In case such loans fall short, a borrower may need additional funds to meet the gap. In such scenarios, a top up loan on a home loan can be an ideal funding option to address immediate expenses.

Whether it is to renovate a house, repair damaged portions or meet medical emergencies, top up loan acts as a saviour with its high-sanction amount at affordable rates. Read along to know everything about a top up home loan.

What is a top up loan?

A top up loan is additional funds acquired above and over an existing home loan. Usually, financial institutions extend such credit facilities to existing loan customers to help them fulfil their financial goals with ease. Moreover, lending institutions evaluate top up loans after measuring the outstanding home loan liability. 

They calculate FOIR (Fixed Obligation Income Ratio) for a top loan on a home loan after subtraction of existing obligations. Also, interest rates on such loans differ across lenders. Hence, before applying for this particular credit option, borrowers must check the rates offered by multiple financial institutions to avail the most affordable one.

Features of a top up home loan

Usually, a top up loan is extended to customers with a healthy relationship with the lender with a good credit score and repayment capacity. Here are some of the pointers that will allow borrowers to consider whether such loans are worth considering or not:

No end-use restriction

The amount acquired from a top up loan on a home loan can be used for multiple purposes associated with the existing property. It can be used to purchase furniture, renovate/improve a house or other personal requirements.

Competitive interest rate

Usually, top up loans are approved on similar terms and interest rates as that of the existing home loan. However, in certain cases, relationship with a lender, borrower’s eligibility and lender’s policy may agree to a different tenor and interest rates.

Prompt process

As the borrower’s creditworthiness has already been checked by the lender when sanctioning a home loan, acquiring a top up loan is quite convenient. Moreover, borrowers are not required to submit any additional documents for approval.

Tax benefits

Borrowers acquiring a top loan on a home loan are eligible for tax savings on it if the funds are utilised for renovating, expanding, repairing or building residential property. If the property is self-occupied, borrowers can avail of a tax deduction of Rs.30, 000 on a top up loan. These deductions are a significant part of the overall tax deductions slab of Rs.2 lakh for the interest component.

After knowing everything about home top up loans, borrowers need to meet certain  eligibility parameters to enjoy the aforementioned benefits.

Eligibility criteria of top up loan 

To fulfil all your urgent financial needs with a top up loan, you must meet the following eligibility parameters:

  • Applicants must have a clear repayment history
  • There must be no EMI bounce
  • Must be an Indian resident
  • Should be salaried or self-employed

Apart from these, borrowers need to submit the following documents:

  • KYC documents
  • Salary slips for last 2 months
  • Financial statements for the last 3 months
  • Employee ID card

However, one must note that they can quickly get the approval to top up a loan by opting for a home loan balance transfer. To choose this facility, borrowers need to talk to their existing lending institution and seek a NOC for a hassle-free loan transfer.

In this regard, while transferring the amount, borrowers can use a top up loan calculator with details like tenor, loan amount, net income, monthly obligation etc., to understand their eligibility. However, note that lenders often charge additional fees such as processing fees, prepayments etc. Therefore, borrowing such a financing option without any reason can burden your finances unnecessarily.

Availability of such credit options from leading financiers will provide the benefit of pre-approved offers on a range of financing options such as home loan, loan against property etc. These offers significantly eliminate the hassle of lengthy documentation and save time. Therefore, existing borrowers can check their pre-approved offers by mentioning their names and contact details.

Thus, a top up loan on a home loan comes with its own set of benefits and criteria. However, one must always evaluate his/her financial capability before applying for additional funds. This will further remove repayment issues in the future.

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