Top-Up Loan On Your Existing Home Loan
Top-up loans for funding needs!
Mr. Manish Agarwal, has a 15 year home loan on which repayment has already begun. He finds himself in need of additional funds to repay his brothers EMI on a car loan because he has lost his job. Mr. Agarwal is evaluating options- personal loan he is not willing to take because of a high rate of interest. Loan against property he won’t get because the house is a security with the bank on account of the home loan he has taken. Loan against security is an option but the loan he would get on the same is not substantial enough to fulfil his financial need. Besides, the tenure is too short for his liking. Mr. Agarwal is now in a fix and is wondering what to do. He talks to one of his friend who is a financial advisor and he suggests a top-up loan for Mr. Agarwal.
What is a top-up loan?
A top-up loan is a facility given to existing home loan customers, whereby an additional loan amount can be sought over and above the approved home loan amount. This product is aimed at fulfilling the funding requirements of customers on which there are no end use restrictions. So the loan is provided even to fulfil personal requirements such as funding children’s education, marriage or buying a hi-tech laptop or even for paying the increased EMI on account of increase in interest rates. Banks will not monitor the end usage of the top-up loan.
Eligibility: You need to have a home loan to get a top-up loan. Most banks require customers to have the home repayment history for at least six months.
Quantum of Top-up Loan: Banks take into consideration a few parameters before determining the loan amount. They include.
- Market Value of the property is taken into consideration for determining the value of the top-up loan.
- The loan re-payment history of the customer is also looked at. Therefore the eligibility criteria itself requires re-payment history of a minimum of six months.
- The amount of loan outstanding: Most banks will ensure that the total loan amount outstanding i.e. original home loan amount and the top-up loan will not exceed 70% of the market value of the property. Hence, top-up loan amount will be determined by amount of loan outstanding.
- The repayment capacity: Banks will check the credit score and the individuals income just to ensure that the repayment capacity has not changed since the disbursal of the home loan
Tenure: The maximum tenure that a customer can avail is to the extent of the outstanding tenure of the existing loan.
Interest Rate: The rate of interest charged is similar to that of the home loan or sometimes a tad higher.
Tax Benefit: It is allowed only on the interest portion under section 24 of the Income Tax Act. However to claim tax benefit on the loan amount i.e. principal, the purpose for which it is used is key. So if the top-up loan is used for repair/renovation/acquisition/construction of property and if proper documentation is present, the individual will be eligible for tax benefit on the principal too.
- No restrictions on fund utilisation: Funds obtained through top-up loans can be used for personal purposes. Banks do not monitor the end usage of the funds as in the case of home loans. It is akin to a personal loan product to that extent that there is no restriction on fund usage. The key difference being, top-up loans come at a much lower rate of interest as compared to personal loans. The reason being, the loan is secured by virtue of the home loan under which the house is the security.
- Tenure: Top-up loans can be availed of for a comparatively longer tenure as banks allow repayment up to the outstanding tenure of the home loan. That provides the individual with adequate time for repayment.
This particular loan product will thus satisfy Mr. Agarwal’s financing need at a reasonable rate of interest and for a tenure much longer giving him the much needed breathing space for repayment.
7 Responses to “Top-Up Loan On Your Existing Home Loan”
kirti said on July 6th, 2010 at 3:52 pm
Calculation is little tricky
praveen said on November 25th, 2010 at 2:39 pm
I have taken home loan from canara bank for 6 lakhs 4 years back with a tenure of 10 yrs. How much can i get top up asumingmy property value is around 20 lakhs, and what will be the probable EMI
Logashree said on February 8th, 2011 at 3:18 pm
I have taken a home loan for 5.5 Lakhs 5 Years back with a tenure of
15 years and also I am having personal loan and credit card loan
of around 2.5 Lakhs and now my home loan balance is around 4.5 Lakhs.
I need a loan of 7 Lakhs to close all my existing loans.
My monthly take home pay is aroung 15000/- and the property value
is around 25 lakhs. How much I am eligible for a top up loan.
manjeet said on March 23rd, 2011 at 12:54 pm
I have taken a home loan for 5 Lakhs 1 Years back with a tenure of
5 years ,.,.and now i just paid 12 emis,..so now i wanna take a property loan again for rs,..15 lakh and my property value is 50 lakh.,..so whats d procedure to top up dis loan.,…anyone plz help me out
Charu said on April 15th, 2011 at 11:49 am
In your case getting a loan against property is not possible as your property papers are already with the bank. Instead you can go for a top-up loan, where you can add additional value to your existing home loan amount. Here, the bank would take into consideration few parameters like that of home loan repayment history, market value of property, amount of loan outstanding, etc.
vijay said on April 28th, 2011 at 10:24 am
i have taken a home loan from hdfc of Rs 4,00,000/- in 2003. my emis are clear till date. i would like to go for topup loan. pl. help me to where and how can i get topup loan fast ?
Ritesh said on February 4th, 2012 at 10:14 pm
I have taken a home loan for a flat for which I will be getting possession in couple of months. I would like to go for a top up loan to take care of furnishing, wood work in my flat. Please help me in finding out how to take care of my wood work expenses from my existing home loan.