If you already have a running home loan and require a long term loan without mortgaging a new asset, you can choose a home top-up loan. It is one of the ideal ways for homeowners to raise money. Here are six key benefits of a top-up home loan.
Little To No Documentation
Since there is a running home loan with the lender, the borrower’s creditworthiness will already be known while applying for a home top-up loan. So, the paperwork required to apply for a top-up loan will be almost zero. The borrower’s repayment record must be clean.
When you apply for home loan, you must have submitted documents like ID proofs, ITR return, photographs, etc. These documents will be enough for a top-up loan too. Lenders allow top-up loans to borrowers 18-70 years of age. The lender’s terms and conditions, outstanding home loan amount and the market value of the underlying mortgaged property will determine the maximum top-up home loan amount the lender will approve.
No Limits On Usage
Unlike home renovation loans, which can be used only for repairs and home renovation purposes, home top-up loans can be used as per your needs. Like a personal loan, you can use this top-up loan for any requirements like paying medical bills, paying your child’s education fees or tuition fees, meeting any emergency financial requirement, etc., without any restriction.
Extended Repayment Tenure
In a home top-up loan, the existing home loan’s remaining repayment period determines the repayment tenure. You may need a more extended loan repayment period at times. Other loans like personal loans and Loan Against Property allow maximum repayment tenure of 1-15 years.
If your underlying home loan has a remaining repayment period of 15 years, you can get a maximum home top-up loan repayment period of up to 15 years. This will be subject to the lender’s terms and conditions.
Low-Interest Rate
Home top-up loans are considered one of the cheapest borrowing tools. The top-up home loan interest rate will be the same or a little higher than the interest rate of the existing home loan. Here is a list of the top-up home loan interest rates of leading banks and HDFCs.
| Institution | Interest Rate (%) |
|---|---|
| State Bank of India | 7.00 |
| IDBI Bank | 6.95 |
| Bank of India | 7.00 |
| Punjab National Bank | 7.00 |
| Bank of Baroda | 7.35 |
| Bajaj Finserv | 6.70 |
| HDFC Ltd | 6.85 |
| LIC Housing Finance Ltd | 7.25 |
*The interest rates are valid from 12th April, 2022 and maybe subjected to change as per lender’s discretion.
Overdraft Facility
Some lenders provide an overdraft(OD) facility in a home loan top-up. If you are looking for an instant liquid amount, a term loan may not be ideal. You can get a top-up home loan with an overdraft facility for this purpose.
The home loan top-up with the OD facility’s interest rate will be lower than a personal loan but higher than a regular home loan. The benefit of continuous liquidity for the long term is also available. This makes a top-up home loan with the OD facility most useful.
Tax Benefits
If the top-up home loan amount is used only for construction, repair, renovation or extension of a residential property, you can claim tax benefits on a home top-up loan. In this case, the deduction can only be claimed for the loan’s interest component and not the principal component.
If the loan is used for a self-occupied house, the maximum tax deduction of up to Rs. 30,000 can be claimed. There is no limit on the deduction if the loan has been used for a let-out property. The overall deduction limit is Rs. 2 lakh per annum, and both these come under that. This deduction is available on the interest component of home loans.
