Home loan borrowers must know about top-up loans as these loans can prove to be a saviour in times of a financial crisis. A top-up loan is a loan sanctioned on an existing home loan. Banks and NBFCs offer this facility only to their most reliable clients. Top-up loans come with end-use flexibility and can be used for housing needs.
Borrowers need to meet the eligibility requirements to qualify for these loans. In the next section of this article, we walk our readers through the qualifying criteria for top-up loans.
Top-Up Loans on Home Loans: Eligibility Requirements
- An existing borrower or client can apply for a top-up loan on a home loan if they have not had more than one EMI bounce in the previous year.
- Further, they are considered eligible for a top-up loan only if they have cleared the bounced home loan EMI before the next due date.
- One can apply for a top-up loan on a housing loan only if they have cleared EMIs for at least six months. Some lenders require borrowers to pay at least one year’s home loan EMIs before considering them eligible for a top-up loan.
Top-up loans can help one navigate financial emergencies related to housing. However, is a top-up loan always a good idea? Are there any disadvantages associated with these loans? Read on to know.
Top-Up Loans: Benefits and Drawbacks
Benefits
Here are the benefits associated with top-up loans:
- The biggest benefit of a top-up loan availed of on a home loan is that these loans come with end-use flexibility. Thus, the money can be used to meet housing expenses such as remodelling and renovation.
- Top-up loans do not attract a high rate of interest. In fact, compared to personal loan interest rates, top-up loan interest rates are quite low. A good repayment history and credit profile can make you eligible for a top-up loan interest rate only 1% to 2% higher than your latest home loan interest rate. Personal loan interest rates, on the other hand, can go as high as 22%.
- Further, since your lender already has all the home loan documents they need, top-up loan approval does not take a lot of time. In fact, with the right lender, a borrower can have the loan money in their account within 2 to 3 days.
- In the case of top-up loans, borrowers can secure a low-interest rate loan and sufficient funding without pledging any additional security.
Drawbacks
Here are some of the disadvantages associated with top-up loans:
- The biggest problem with top-up loans is that to be able to avail of a top-up loan, you must be an existing customer with an excellent repayment record. If due to a financial emergency, you had defaulted on loan repayment, your lender will not consider you eligible for a top-up loan.
- Top-up loans make one eligible for tax benefits only if one uses the money for home construction or renovation purposes. If one uses the money for any other purpose, one is not considered eligible for any top-up loan tax benefits.
- Lenders decide the top-up loan to be sanctioned based on the original home loan amount as well as the income of the borrower. Even if the value of the property bought with the loan money has already appreciated, your lender won’t take your property’s new value into account while deciding the top-up loan amount to be sanctioned.
Process to Apply for a Top-Up Loan
If you want to avail yourself of a top-up loan on your home loan, you can do so by filling out the top-up loan form on your lender’s website. You will be required to attach all income documents along with your loan application. If you meet all the qualifying criteria, you can expect to see the top-up loan amount in your bank account within 48 to 60 hours of applying for the loan.
If you are planning to apply for a home loan, opting for a joint home loan will not only make you eligible for a higher loan amount but will also allow you to save more on taxes. Further, if your current lender denies you a top-up loan, you can consider opting for a home loan balance transfer. When an individual applies for a home loan balance transfer, they automatically become eligible for a top-up loan.