Home loan top-up: Features, benefits, eligibility, application

A home loan is a form of financial assistance obtained from institutions like banks and housing finance companies to facilitate the purchase, or construction of a house. These institutions, commonly known as lenders, extend this loan following a thorough evaluation of the applicant’s eligibility. Furthermore, the eligibility of the specific property for which the loan is sought is also a crucial factor. A top-up in a home loan is an additional facility offered by many lenders, allowing borrowers to obtain a smaller supplementary loan alongside their existing home loan. Read on to learn all about the home loan top-up.

Table of Contents

Home loan top-up: Meaning

A home loan top-up refers to loans provided by banks to existing home loan borrowers. While certain banks impose conditions stipulating that the top-up loan must be utilised exclusively for home-related purposes, others may not impose such restrictions. Post the acquisition of a house, there might arise a necessity to undertake renovations, enhance interior decor, upgrade home appliances, or even reconstruct the property, particularly in the case of individual bungalows or villas. To address such needs, the home loan lender may offer a smaller loan amount known as a top-up. This facility is available to existing home loan borrowers without the need for any additional security or guarantee. The interest rates are similar to or slightly higher than home loans, and it’s noteworthy that tax benefits can be claimed on your home loan top-up.

Home loan top-up: Features

Here are some common features of a home loan top-up:

Higher loan amount: Banks in India permit a loan amount of up to Rs 50 Lakh through the top-up. However, it is subject to the outstanding home loan within the bank’s policy limits.

Extended repayment period: In comparison to a personal loan, a top-up offers a more extended repayment duration, allowing for a more manageable payback period, which can be extended up to 20 years.

Lower interest rate: With the interest rate on a home loan being lower than that on a personal loan, opting for a top-up in case of an emergency is advisable.

Swift processing: Obtaining a top-up loan is quicker compared to other types of loans, as there is no additional documentation or verification process, making the process more straightforward and faster.

No additional security required: A top-up loan is applied over the existing home loan, eliminating the need for additional security.

Versatile usage: A top-up loan can be utilised for various purposes, including weddings, renovations, education, or business ventures, provided the lender allows it.

Home loan top-up: Eligibility

The eligibility criteria for a home top-up loan align with the requirements for the home loan provided by the respective bank. While specific conditions may differ between banks, essential points to consider include:

Ongoing home loan: The applicant must have an existing home loan with the same bank offering the top-up. It is not possible to obtain a home loan top-up from a bank where the individual holds a home loan with another institution.

EMI bounce: There should not be more than one EMI bounce in the preceding year. If any bounce occurred, it must be resolved before the next EMI is due.

Repayment history: A clear repayment record of the existing home loan for at least six months is necessary. In the case of top-up loans combined with balance transfer home loans from other banks, a clear repayment history of one year is crucial.

General criteria, consistent with home loans, include:

Age: Between 21 to 65 years
Nationality: Resident Indian or Non-Resident Indian
Profession: Applicable to both salaried and self-employed individuals

Home loan top-up: Interest rate

The interest rates for the home loan top-up facility offered by lenders are generally comparable to or slightly higher than standard home loan rates. However, in most cases, top-up home loan interest rates are lower than the interest rates for personal loans provided by the same lender. This lower interest rate not only results in reduced Equated Monthly Instalments (EMIs) but also lowers the overall interest costs. Borrowers opting for top-up home loans can save significantly on interest expenses, making it a more cost-effective choice compared to availing personal loans. Lenders determine top-up interest rates based on factors such as the borrower’s credit scores and repayment history. Therefore, individuals with existing home loans seeking funds for personal or business purposes can benefit from choosing top-up home loans.

Home loan top-up: Tax benefit

Tax benefits on home loan top-ups can be claimed if the loan is exclusively utilised for the renovation, construction, repair, or extension of a residential property. The maximum deduction allowed is up to Rs 30,000 for a self-occupied home. In the case of a let-out property, there is no limit on the deduction. However, both scenarios fall under the overall total tax deduction of Rs 2 Lakh per year available on the interest component of home loans.

If the top-up loan is employed for constructing or purchasing a new property, the principal and interest components are eligible for tax deduction, subject to limits set by Section-80C and 24(b). Yet, if the home loan top-up is directed towards the renovation, repair, or alteration of a residential property, only the interest component qualifies for the deduction, not the principal. To claim tax benefits, it’s imperative to retain receipts and documents pertaining to all the work carried out on the residential property funded by the top-up loan.

How to apply for a home loan top-up?

There are several methods to apply for a top-up home loan, depending on the bank from which you are seeking the loan. However, the typical ways to apply for a top-up loan include:

Visit the bank branch directly: You can visit the branch of the bank from which you have availed your home loan and apply for the top-up loan in person.

Apply online through the bank’s website: Visit the official website of the bank and submit your application online. Provide your contact details, and the bank will subsequently get in touch with you to proceed with the application.

Home loan top-up: Things to consider

Repayment tenure: The repayment tenure for a home loan top-up is typically capped at 10 years or the remaining tenure of the existing home loan, whichever is shorter. Some banks may extend the tenure to 20 years but within the limits of the home loan tenure.

End-use restrictions: While a home loan top-up is versatile, allowing for various purposes, the funds must not be utilised for speculative, gambling, or illegal activities. It is essential to adhere to legal and ethical usage.

Processing fees: Banks generally charge processing fees for home loan top-ups, typically ranging from 1-2% of the applied top-up amount. The specific fee structure can vary among different banks.

FAQs

What is a home loan top-up?

Home loan top-ups are additional loan facilities provided by lenders to individuals with existing home loans.

What is the maximum amount for a home loan top-up?

The maximum amount for a top-up loan varies among lenders and is influenced by the Loan-to-Value (LTV) ratio. While some lenders may have no specific limit, others tie it to the original home loan amount. Typically, borrowers cannot exceed the initial loan amount.

What is the maximum tenure for a top-up loan?

There is no fixed repayment period for a top-up loan. The term depends on factors, such as the borrower's financial background and creditworthiness. Although top-up loans often have longer terms, they cannot exceed the outstanding term of the initial loan.

What is the interest rate for a home loan top-up?

Interest rates are generally comparable to or slightly higher than standard home loan but are usually lower than personal loan interest rates provided by the same lender.

Are there tax benefits on home loan top-ups?

Yes, tax benefits can be claimed if the top-up loan is used exclusively for the renovation, construction, repair, or extension of a residential property.

Got any questions or point of view on our article? We would love to hear from you. Write to our Editor-in-Chief Jhumur Ghosh at jhumur.ghosh1@housing.com

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Dhwani Meharchandani

Dhwani is a content management expert with over five years of professional experience. She has authored articles spanning diverse domains, including real estate, finance, business, health, taxation, education and more. Holding a Bachelor’s degree in Journalism and Mass Communication, Dhwani’s interests encompass reading and travelling. She is dedicated to staying updated on the latest real estate advancements in India.
Email: dhwani.meharchandani@housing.com