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Long-term Loans: Six benefits of a top-up home loan

In a top-up home loan, the tenure depends on the home loan’s remaining repayment period

You can use the loan to meet needs such as an emergency financial requirement, paying medical bills, or financing your child’s education fees, among others.
You can use the loan to meet needs such as an emergency financial requirement, paying medical bills, or financing your child’s education fees, among others.

A top-up home loan can be your best option when you are looking for a long-term loan, have a running home loan, and don’t want to mortgage a new asset to get the loan. It is also one of the most convenient ways for homeowners to raise money.

Here are some of the key benefits of a top-up home loan:

Easy and simple eligibility criteria
As the lender already knows about the creditworthiness of the borrower due to the ongoing home loan, the top-up requires little to no paperwork. “The borrower must have a clean repayment record with the existing home loan along with documents such as ITR return, ID proofs, photographs, etc. Usually, banks allow a top-up home loan to borrowers in the 18-70 years age group. The maximum top-up home loan amount depends on the outstanding home loan amount, the market value of the underlying mortgaged property, and the terms and conditions laid down by the bank,” says Adhil Shetty, CEO, Bankbazaar.com.

No restrictions on usage
Just like a personal loan and a gold loan, you have the liberty to use the top-up home loan as per your needs. You can use the loan to meet needs such as an emergency financial requirement, paying medical bills, or financing your child’s education fees, among others. This is, however, not the case with home renovation loans which can be used for repairs and home renovation (structure of the house) purposes only.

Long repayment tenure
At times you need a longer tenure to repay your home loan. Options such as gold loan, personal loan, loan against property (LAP), etc., usually allow a maximum repayment tenure that ranges from one year to 15 years, depending on the lender’s terms and conditions. However, in a top-up home loan, the tenure depends on the home loan’s remaining repayment period. For example, if the remaining repayment period in your home loan is 20 years, then you can get a maximum repayment period of up to 20 years in your top-up home loan as well, subject to the lender’s conditions.

Overdraft facility
If you are looking for frequent liquidity, a term loan may not fit into your requirement. So, you may go for a top-up home loan with an overdraft (OD) facility. Some banks provide an OD facility in a home loan top-up. The interest rate on a home loan top-up with OD facility is slightly higher than a regular home loan but lower than a personal loan, and you also get the benefit of continuous liquidity availability for the long term. So, a top-up home loan with OD facility can be useful in that sense.

Low interest rate
The interest rate on the top-up home loans is the same or slightly higher than the underlying home loan product. Therefore, top-up home loans are one of the cheapest borrowing tools. If you are planning to buy a car or go on a holiday trip, or need funds for your child’s wedding, a top-up home loan can prove to be one of the cheapest borrowing instruments.

Tax benefits
You can claim tax benefits on a top-up home loan if the loan has been used only for the purpose of construction, renovation, extension, or repair of a residential property. The maximum tax deduction available is up to Rs 30,000 if the loan is used for a self-occupied house. If the loan has been used for a let-out property, there is no limit on the deduction. However, both of these come under the overall total tax deduction of Rs 2 lakh per annum that is available on the interest component of home loans.

“If the top-up loan has been used for purchasing or constructing a new property, the principal and interest component of the top-up loan will be eligible for tax deduction which is subject to the limit prescribed under Sections 80C and 24 (b). However, if the loan is used for the renovation, alteration, or repair of residential property, the deduction can only be claimed for the interest component of the loan and not the principal component,” informs Shetty.

Coming up tops
* Interest rate on top-up home loans is generally the same or slightly higher than the underlying home loan product
* Some banks provide an overdraft facility in a top-up home loan. In such a case, the interest rate is slightly higher than a regular home loan
* You can claim tax benefits if it is used only for construction, renovation, extension, or repair of a residential property

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