Moneycontrol
Sep 11, 2017 10:58 AM IST | Source: Moneycontrol.com

Top-up home loans: How do they fare against other options?

Here are the various features of top-up home loans and how they compare with other credit alternatives like personal loan, gold loan, credit card loans.

Top-up home loans: How do they fare against other options?

Ajay Mishra

Top-up loan can be considered as an extension of your existing home loans. This facility is offered to the existing home loan borrowers to finance their personal or professional requirements. As the lenders and borrowers already have an existing relationship, they do not have to undergo the hassle of fresh documentation and other credit appraisal procedures.

Here are the various features of top-up home loans and how they compare with other credit alternatives like personal loan, gold loan, credit card loans.

Eligibility: Top-up loans can only be availed by existing home loan borrowers. Even then, only those existing home loan borrowers who have paid a minimum number of EMIs with a consistent payment track record can apply for a top up loan. Some lenders may also have an additional condition of lending only against completed residential property. Many lenders also allow top-up loans to those transferring their existing home loans from other lenders.

Freedom of end-usage: This is the biggest advantage of top-up home loans. Just like personal loans, the proceeds of these loans can be used for a number of purposes. For example, you can use it to renovate your property, buy furnishings or electronic items, use it for your child’s education or marriage expenses, finance your tours and travels, use it to buy a car or even finance your business.

Long loan tenure: The tenure of top-up home loans can go up to 20 years depending on the outstanding tenure of your home loan. The maximum tenure would always be the same as the outstanding tenure of your original home loan. The tenure of the loan would also depend on the customer’s profile and his other existing EMI obligations. Longer repayment tenure will also help in getting higher loan amount compared to personal loan or Gold loan eligibility. However, your top-up loan amount and outstanding loan amount should not exceed the LTV ratio set by the bank.

Lower interest rate: The interest rates of top up home loans are usually up to 50 to 100 bps higher than the home loan rates. Some lenders also price their top up loans at the same rates charged for home loans. This makes top-up loans the cheapest credit facility available to existing home loan borrowers. Thus, apart from fresh financing, top up loan can also be used to consolidate your existing debt by paying off other loans taken at higher interest rates.

Tax benefits: The tax benefits of top-up loans will depend on its end-usage. The interest paid on top up loans qualifies for tax deduction under Section 24b when the loan proceeds are used for home renovation, alteration or repair of the property. If the loan proceeds are used for the purchase or construction of a new property, then the amount paid for principal and interest repayments qualify for tax benefits under Section 80C and Section 24b respectively. However, top up loan proceeds used for funding education do not qualify for tax benefits under Section 80E.

Processing time: This is where top up home loans are outscored by other instant credit alternatives like personal loan, loan against credit card, gold loan, etc. While personal loans are disbursed within 2–7 days and gold loans and loan against credit cards are disbursed within the same day, the disbursal of top up home loans can take anywhere from 7 to 10 days.

The writer is Vice President& Business Head – Secured Loans of Paisabazaar.com
X
Sections
Follow us on
Available On