Finding and purchasing a forever home is the long-standing dream of many Indians. However, most of us invariably need to get a Home Loan to make this dream come to fruition. Besides the Home Loan, we also end up investing our hard-earned savings into funding the purchase, which often leaves us with little financial flexibility when it comes to managing other expenses.
At some point or the other, we inevitably run into a credit crunch situation. Owing to unforeseen circumstances or a combination of unexpected situations or sheer bad luck, we all have had to face a shortfall of cash. During these tough times where funds are desperately needed, we can either seek help from friends and family or avail a Personal Loan from the bank.
Expecting help from friends and family can prove to be tricky in more than one way. Either the funds you seek are too high for them to lend or the case could be that you don’t want them to burden them unnecessarily. The other alternative could be borrowing funds through financial institutions in the form of a bank loan.
As interest rates on Personal Loan tend to be a bit on the higher side vis-à-vis other available loans in the market, you could opt for a ‘top-up’ loan to bail you out as it gives you a much-needed injection of funds at comparatively lower rate. So what exactly are Top-Up Home Loans; let’s prod further:
What is a top-up loan?
As the name suggests, a Top-Up Loan is a type of a loan which you can avail on top of an existing Home Loan. It is the best option for availing further funds as it can help you out during a financial crisis or emergency situations by providing you with more funds. Be it a home renovation, emergency medical bills or paying off your child’s academic fees, a top-up loan can easily be procured with minimum time, effort and at a lower rate of interest than Personal Loans. Moreover, the best part is that you don’t need to go through the hassle of completing loan formalities such as furnishing additional documentation or collateral either.
What are the eligibility criteria for availing Top-Up Home Loans?
Availing a Top-Up Loan is a better, quicker, and cheaper option than opting for a Personal Loan. Top-Up Home Loans such as IndusInd Bank Home Loan can be availed by an individual who already has an existing home loan running on their account.
In order to be eligible, you need to have a good repayment track record on your existing Home Loan as well as a healthy credit rating. In case the Top-Up Home Loan interest rate provided by your existing lender is unfavourable, you can always approach another lender to get your existing loan transferred and also apply for top-up at the same time. That said, you will have to adhere to all the documentation procedures and KYC formalities again with the new lender.
Tenure & Loan Amount
The Top-Up Home Loan tenure usually varies from lender to lender but more often than not, has 15 years fixed as the upper limit. In some cases, lenders may also limit the tenure depending on how much time is remaining on your Home Loan so as to make sure that the repayment of your Home Loan along with the Top-Up Loan coincides together.
Other factors which influence the tenure of the loan include your profile, your age at the time the loan matures, age of the property at the time the loan matures, etc. Lastly, the residual life of the house can also be another factor that can dictate the maximum tenure of your Top-Up Loan. Further, you must know that Top-Up Home Loan facility is not always available with all lending institutions. There are several banks and NBFCs that do not provide any such provision.
Similarly, the maximum amount that can be procured by means of the top-up facility is also subjective from lender to lender. In most cases, lenders analyse the aggregate of the proposed Top-Up Loan and outstanding on your home loan and also consider the requirement and your income level. That said, there are certain lenders which calculate your overall loan eligibility after carefully considering your present gross earnings (income), other loan obligations and a margin of around 20 to 25 percent –based on the current value of the property. However, if looked at an absolute basis, the maximum amount of Top-Up loan that you can avail on your Home Loan is up to a maximum of Rs. 50,00,000.
The purpose for which top-up loans can be taken
A Top-Up Loan can be obtained for fulfilling a wide variety of personal needs such as meeting any personal needs from marriage expenses or education pursuits of children to funding vacations or holidays or even purchase of gadgets. It can also be used for professional and business requirements. That being said, the Top-Up Loan cannot be utilized for any speculative activity such as trading in shares, etc. Additionally, the lending institution might also insist on getting an undertaking from you to clarify about the proposed usage of the loan.
Benefits of a Top-Up Home Loan
Some of the benefits of obtaining Top-Up Home Loans are listed as below:
No collateral or security requirement– Since a Top-Up Loan is offered on top of your existing Home Loan – which is a secured loan – there’s no need for additional collateral to be presented.
No restriction of usage of the funds– You can use the loan for a variety of personal or professional needs as per your convenience.
Low-interest rate as compared to other loan types such as consumer/commercial loans– Home Loans are some of the cheapest types of loans available in India, and since your Top-Up Loan is technically an extension of your Home Loan, the rate of interest automatically becomes feasible.
Instant funding– A Top-Up Loan is readily available for disbursal and can be used to meet any unforeseen circumstances that might come up. Moreover, owing to minimal documentation requirements, you will always be in an advantageous position.
Longer duration– Top-Up Home Loans can be availed for a longer tenure and can be extended up to 15 years which is higher than Gold Loans and Personal Loans. You can also easily repay the loans thanks to easy repayment option in the form of EMI.
The Bottom Line
If you’re someone who boasts of a good repayment track record, then availing a Top-Up Home Loan may be the best solution if you require an additional source of funds. You stand to benefit from the pros that come with a secured loan such as a lower rate of interest, EMI repayment option, and a longer tenure. In addition, you can obtain the loan without any hassles such as excessive documentation or having to pledge any collateral or security.