Table of Contents
When a person buys any property, it generally involves taking a home loan and also exhausting a substantial amount of one’s savings, to fund the margin money. Moreover, home buyers also try to avail of the maximum possible loan amount, to get the best home. Sometimes, a situation may arise, where you need a substantial amount of money, while you are also servicing an existing home loan. There is an option called a ‘top-up home loan’, to deal with such situations.
When and from whom can you get a top-up loan?
A top-up loan is an additional amount that one gets as a loan, over and above your existing home loan. Various lenders have a minimum qualifying period for which the original home loan should have run, before you become eligible for the top-up loan. The period generally varies from six months to one year. Lenders also normally insist that the house for which the loan was taken, be completed.
For availing the top-up home loan, you need to have a good repayment track record on the existing home loan. Otherwise, the lender will not commit any further funds, when the existing loan is already at stake.
If your existing lender is not willing to give you a top-up loan, you can always approach another lender, to transfer your loan along with a top-up loan. In such a case, you will have to comply with all the documentation and KYC formalities, with the new lender.
Quantum and tenure of the loan
Your income may have increased, after your original home loan was disbursed. Similarly, the value of the property may also have appreciated. Both these factors add to your overall credit eligibility. The maximum amount of top-up loan that you can get will differ, depending on the lender. Some lenders cap the aggregate of the proposed top-up loan and balance outstanding on your home loan, to the original amount that was sanctioned for the home loan, subject to the margin requirement and your income level. Other lenders may calculate your overall loan eligibility, after taking into account your present income and a margin of around 25%, on the current market value of the home.
The tenure of the top-up loan, also varies from lender to lender. The maximum top-up loan tenure is generally restricted to 15 years. Some lenders may also restrict the tenure, to the remaining period of the home loan, to ensure that the repayment of the home loan as well as the top-up loan, is completed at the same time. The maximum tenure of your top-up loan, is also limited by the residual life of the house.
Purpose for which top-up loans can be taken
The top-up loan can be used for any personal need, like marriage or education of children, holidays and purchase of consumer durables, like televisions, refrigerators, laptops, etc. However, the top-up loan cannot be used for any speculative activity, like trading in shares, etc. The lender may insist on obtaining an undertaking from you, about the proposed usage of the loan.
Why a top-up loan is better than a personal loan or gold loan
As the top-up loan is given on the security of the house, the rates of interest are lower than that on a pure personal loan. Likewise, the rate of interest on a gold loan, is also higher than a top-up home loan. Moreover, the tenure of a gold loan or a personal loan, is generally lower than what is available on a top-up home loan.
(The author is a tax and investment expert, with 35 years’ experience)