Top-up loan is the best avenue to access added financial support when purchasing a house. There are multiple expenses related to investing in a house like interior decoration, renovation, etc. In such a situation, borrowers can avail top-up credits over and above their current home loan amount.
This additional amount can be availed while opting for a housing loan balance transfer. When a borrower shifts his/her existing home loan from one lender to another, he/she gets the opportunity to top-up the amount available. Since it comes without end-use restrictions, a top-up loan allows borrowers to finance several miscellaneous costs, like personal expenses or related to their home.
It is crucial to understand this loan and its benefits to ensure that individuals can make an optimal borrowing decision regarding the same.
What is the function of a home loan top-up?
A top-up loan comes with no end-use restrictions and allows borrowers to use the funds to meet any number of requirements. The funds availed through this top up can help mitigate sudden expenses that may arise during house construction. Moreover, borrowers do not need to go through any other documentation formalities to avail this advance.
Features of a top-up loan
Following are some of the most attractive features of top up loans on housing loan balance transfer –
Flexibility of usage
Top up loans can be availed by only existing home loan borrowers, but the lack of restriction on the end usage makes it convenient for borrowers. The flexibility of usage aids individuals to initiate hassle-free spending. They can easily finance immediate expenses like house renovation, medical emergency, marriage requirements, invest in furniture, education, etc. This makes the credit form a reliable financial source to mitigate short-term financial requirements.
Lower interest rates
As top-up loans are available while opting for balance transfer facilities, the interest rates on this additional amount are also lower than other unsecured credits.
However, to leverage the benefits, borrowers need to gain deeper insight into the housing loan interest rate in India and the transfer charges. This would also help them gauge their repayment liabilities better.
No additional documentation
As a top-up loan is available on an existing home loan, borrowers don’t need to submit additional documentation to avail it. This saves a considerable amount of time and facilitates quick credit disbursal.
High loan value
The credit value against a top-up loan depends on the existing home loan amount and the LTV ratio. In this regard, one must know that a lower LTV on a home loan can increase a borrower’s chances to avail the loan.
One can easily find HFCs that offer substantial credits under top-up loans with a favourable balance transfer facility.
These financial institutions also provide pre-approved offers that help to streamline the loan application process. Such offers are available on several loan products like loan against property, home loan etc. Individuals can check their pre-approved offer by providing their name and contact number.
Similar to the tax benefits on a home loan, a top-up loan borrower is entitled to tax deductions. The Income Tax Act, 1961 allows borrowers to avail a tax deduction on a top-up home loan of up to Rs.30,000 on interest payable for a self-occupied house. There are no limits for a deduction on renovation or refurbishing of let-out property.
These are some of the effective features of a top up loan, making the home loan borrowing experience lucrative. Individuals can easily remove the hassle of servicing multiple loans and stick to planned savings.
Nonetheless, one must keep track of the updates announced by the RBI and initiate an application. They should also calculate their repayment capability to remove the concerns of a debt trap. However, if confusion prevails, individuals can use the home loan calculator to deduce the monthly obligations and employ ways to maximise savings.