After borrowing home loans, many borrowers look to remodel or renovate their homes. If you are one such borrower but are worried about the finances, you can get financial help in the form of a top-up home loan. If the EMI payments are being paid on time and the property has a considerable market value, the lender will usually agree to offer a top-up loan. Another way to get this loan is to opt for a home loan balance transfer where the new lender will offer the top-up.
But is getting this loan a good move? Go through the details below to find out!
- Receive financial cover without providing collateral
A top-up loan is additional funding over the existing home loan. Since the house is collateral for the home loan, there is no need to provide any additional security for the top-up loan. You do not need to pledge any valuable asset such as a mutual fund or gold. Always make sure that the existing home loan and the top-up loan are both within the lender’s LTV (loan-to-value) limits.
- Get the top-up loan by giving minimum documentation
Since you have already taken a home loan from the lender, your documents are already stored with them. This means that the lender would most likely not require you to provide any additional documentation while applying for a top-up loan. Your personal and financial details are already with the lender, along with a complete background check. This means that there is no need to start from scratch while applying for a loan.
- Profit from the low interest rate of a top-up loan
As compared to the home loan interest rate, a top-up loan’s interest rate is only about 0.5% to 1% higher. This is much better than the interest rates charged on gold loans or personal loans. A lower interest rate means that the EMIs of the loan would be easier to repay every month.
- Enjoy tax benefits on the loan
If the top-up loan has been taken for construction, acquisition, repair, or renovation of a residential property, it is eligible for tax deductions. The maximum tax deduction on the interest of a top-up loan is Rs 30,000. Do note that the overall tax deduction on the interest of both the home and top-up loans cannot exceed Rs 2 lakh.
- Pay the loan back over a longer repayment tenure
When you apply for home loan, you might get a maximum of 20 years to repay it. A top-up loan will work on the same repayment tenure as your home loan. Now, a top-up loan generally has a repayment tenure of 15 years. However, some lenders offer a repayment tenure of up to 20 years too. This is one reason why it is better to opt for a top-up loan as compared to a personal or gold loan since these loans have repayment tenures lasting 3 and 5 years respectively.
Therefore, these were the various advantages of getting a top-up loan. Make sure to check with the lender about their top-up on home loan eligibility criteria.