Tax Benefits come in tow with your home loan top-up.

Due to high property prices, home loans are much sought after. A home loan top-up is the best way to fund a crucial expenditure at a low-interest rate and extended repayment tenure.

Explaining A Home Loan Top-Up

At times, due to unpredictable circumstances, home loan borrowers may find themselves in need of further funding. If a borrower were in dire need of extra funds for some crucial unavoidable expenses, a home loan top-up is what they could apply for. A home loan top-up can be applied for with the bank which has lent you your existing home loan, but be advised to duly check all payment conditions before you avail of a top-up.

Transfer of Balance

Thorough research of interest rates of similar home loan banks is essential prior to agreement on a top-up loan. If you are not satisfied with the terms offered by your existing bank, a transfer of balance could be carried out to another bank that offers better terms. A comparison of the current lending bank’s home loan top-up interest rate for existing customers can be compared with the charges and formalities of other bank’s new home loan clients.

Easy and Simple Eligibility Criteria

A home loan top-up is easy to avail of as most of the conditions for borrower eligibility have already been scrutinized by the existing lending bank. In the case of transfer to a new bank, the documents required for sanction will be similar to the ones by the previous bank but bear in mind that some factors vary from bank to bank. It generally takes some time to sanction a top-up loan on an existing home loan. 

There are however some important factors that are considered by all banks in order to sanction a home loan top-up. 

• One year dispute-free repayment statement is required by the existing bank or a new bank in the case of the balance transfer. 
• Only a single EMI bounce is allowed in the previous year of the loan tenure.
• An EMI bounce should have been cleared off prior to the next EMI date.

Listed below are the general criteria for a home loan top-up.

• All self-employed or salaried individuals are eligible.
• Available for all Indians and non-resident Indians.
• The age for eligibility is from 21 to 65 years.

No Restrictions on Usage

Reasons for seeking the home loan top-up could vary between individuals. The loan amount can be used for any required expenses and can vary from existing home renovations to buying a new house or for buying a new car. You would have to specify the reason for taking a top-up on the home loan.

However, a home loan top-up cannot be used for speculative purposes. A home loan top-up is more attractive and easily availed over a personal loan or credit card loan. The rate of interest charged is much less as it falls under the ambit of home loans, which are identified as a basic necessity. Tax benefits can be claimed only if the top-up loan is used for household purposes like renovations, building extensions, or modifications. 

Long Repayment Tenure

A borrower’s top-up loan on home loan tenure depends on the number of years their existing home loan tenure is left for. If the borrower has acquired a loan for 20 years and has paid the EMI for 5 years, the home loan top-up tenure would be for the balance of 15 years. Since the loan is spread over the next 15 years the EMI turns out to be less of a burden for the borrower.

Overdraft Facility

An overdraft facility is provided by all home loan banks and is generally the same as the home loan amount. However, for a top-up loan on a home loan, the difference between the actual home loan amount and the outstanding loan amount is considered. For instance, if the sanctioned home loan was INR 50 lakhs of which INR 15 lakhs has been paid already, then the home loan top-up overdraft amount can be INR 35 lakhs. 

Low-Interest Rate

Interest rates of home loan top-up vary from bank to bank and range from 6.75% p.a to 9.15% p.a depending on the amount of the loan sought and fixed obligation to income ratio (FOIR). However, it is important to note that personal loans currently in the market attract around 12% interest. Therefore, a home loan top-up is much sought after as interest rates are lower and is fixed by the amount of top-up requested and the status of the existing home loan.

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