A top-up loan is a bonus to your existing housing loan, provided you have paid at least six EMIs without default. However, this doesn?t mean that anyone could go in for a top-up as there are some conditions that need be fulfilled.
The interest rate on a top-up loan will be the same or 0.5-1% higher than the existing home loan. Some banks charge different interest rates from different people on a top-up loan at a given time. Others have a fixed rate for top-ups, which is 0.5-1% higher than the home loan rate.
A borrower who has completed six EMI repayments is eligible for 10% of the existing home loan amount to be availed as a top-up loan. If one has completed 12 EMIs, the eligibility rises to 20%. Some banks keep a cap of maximum 20% of the existing loans/outstanding balance of the present loan for top-ups. Others are willing to provide up to 100% of the existing home loan.
Rejection of top-up
Applying for and obtaining a top-up loan for the desired amount may not always be a cakewalk. Banks could refuse a top-up loan application, or sanction a lower amount. For example, if even one EMI of the home loan has been delayed or defaulted on, you are less likely to get a top-up loan.
The top-up application is scrutinised by the bank in the same manner as that of a home loan. The bank will evaluate the existing home loan and all other loans as liabilities. In other words, EMI of the applied for top-up loan and all other fixed liabilities, including the existing home loans, should be within 45-50% of the borrower?s or family?s monthly income.
Another area where top-up loans get rejected is the loan-to-value (LTV). Many people might have availed of maximum loan against their property, i.e., 80% of its value. So, a further loan on the same property could not be considered. However, fast appreciation of property is a boon, especially for city dwellers.
Benefits of a
top-up loan
Top-up loans with interest rates as close to the original home loan is an an ideal alternative to personal loans. A top-up loan can be availed of irrespective of the purpose, be it the purchase of consumer durables or furniture for your home, education expenses, business-related purpose, medical emergencies, and so on.
The tenure of a top-up loan can be the same as the balance tenure of your existing home loan, which means lower EMIs compared to other loans like personal loans, business loans or education loans.
Points to note
If you are not eligible for a top-up loan due to your monthly income, you can club that of your spouse or even employed children. If your bank says you are not eligible for a top-up loan as your have availed of the maximum loan against a property, you could request for a technical inspection. Note that additional fittings, fixtures, costly interior designs, etc., will not increase the value of your house. Same dates for both home loan and top-up loan EMI will help you manage both without any default.
Extra time
The interest rate on a top-up loan will be the same or 0.5-1% higher than the existing home loan. Some banks charge different interest rates from different people on a top-up loan at a given time. Others have a fixed rate for top-ups, which is 0.5-1% higher than the home loan rate
A borrower who has completed six EMI repayments is eligible for 10% of the existing home loan amount to be availed as a top-up loan. If one has completed 12 EMIs, the eligibility rises to 20%. Some banks keep a cap of maximum 20% of the existing loans/outstanding balance of the present loan for top-ups
The writer is CEO of BankBazaar.com