A top-up loan is a financing provision that allows borrowers to draw additional funds over and above their existing loan. Individuals with a sound repayment history can easily avail this particular financing facility under specific circumstances.
In general, top-up loans can be availed on several credit options such as home loans and loan against property. However, home loan top up is one of the most popular among the lot. Also, home loans are one of the financing tools that help individuals realise their housing dreams. It is anticipated that the demand for housing loans will reach 40% by 2025. Nevertheless, before moving on to the benefits of this advancing facility, one must clearly understand what a top up loan is.
Understanding top-up loans
A top-up loan is a way to avail additional funding when you have already borrowed a mortgage advance like a home loan. The loan can only be availed when you opt to refinance your home loan with a new lending institution. Lenders offer home loan top up without any end-use restriction, thus making it convenient for borrowers to utilise the advance for diverse financing needs.
Borrowers generally opt for a home loan top up primarily to meet funding needs like renovation, repair and other related expenses. Another common reason why individuals avail the advance includes the consolidation of existing debts. Irrespective of the purpose, borrowers opt for top-up loans because of the several benefits that accompany.
What are the benefits of top-up loans?
Apart from providing additional financial assistance, top up loans bring along several other benefits. Following are some of the aspects that shed light on how you can benefit from a top-up loan.
Scope for a high loan value
Since top-up loans are available on the existing loans, the eligibility of this loan generally requires a repayment record of six months and more. Moreover, up to 50% of the existing loan can be availed as a top-up advance, with a cap on maximum availability which is usually high and can go up to Rs.50 lakh. Thus, with a sound repayment history, a borrower can avail a high top-up loan amount.
Competitive interest rates
Typically, the interest rate applicable to a top up loan on home loan is lower than that of regular housing credit. Thereby, it can prove to be cost-effective compared to other funding options and can be repaid affordably.
Reduced EMIs
Since the interest rates are low, the EMI amount is affordable as well. Hence, it does not cause excessive financial strain in the long run, allowing borrowers to keep their fixed monthly obligations within their repayment capacity.
Besides these, another significant benefit of home loan top up includes tax deductions.
Tax benefits on top-up loans
Just like a standard home loan, borrowers can claim tax deductions on home loan top up as well. However, to claim such deduction, borrowers must utilise it for house purchase or renovation. Also, in a financial year, the maximum deduction they can claim on interest paid towards their top-up loan liability is Rs.30,000 and is included in the total home loan interest deduction of Rs.2 lakh annually in the case of self-occupied houses. Such deduction does not come with a limit in case of houses let out.
With this understanding of what is the benefit of top up loan, individuals must also look out for other factors when availing loans for an overall financing convenience.
Like, top lending institutions require minimum documents for a home loan top up.
They also extend a pre-approved offer that makes the loan approval process less time-consuming and hassle-free. This offer is also available on several financial products, including housing loans and loans against property. You can check your pre-approved loan offer with your name and phone number.
Now that you know about how to fulfil your urgent financial needs with a top-up loan, you can proceed to apply for the advance with the lender providing a balance transfer. Make sure to check other requirements, if any, before applying.