Sometimes, the amount of money availed for a Home Loan can fall short of the expenses involved in setting up a new place. To meet these expenses, some people end up draining their savings while others opt for a Personal Loan. You can take a Personal Loan to meet these expenses and after a few years into your Home Loan, you can take a Top up Loan to clear the Personal Loan. Since, unsecured loans come with a high rate of interest, it’s better to clear them as soon as possible.

Let’s take a look at the details of a Top-up Loan and why you should opt for one.

What is a Top-up Home Loan?

A Top-up Loan is sanctioned over and above your existing Home Loan, subject to certain terms and conditions. Let’s assume you took a Home Loan a couple of years ago to purchase a property. In the next couple of years, you want to renovate your property but you don’t have sufficient funds. Instead of opting for a Personal Loan you can consider going for a Top-up Loan

Why Should you go with Top-up Loans?

A Top-up Loan is a lot like a Personal Loan as it offers similar discretion of purpose and a convenient application process. However, it comes with a lower rate of interest and an extended tenure. The interest rate charged on this loan is generally 1-2% higher than Home Loan interest rates. Since it’s an extension of your Home Loan, you don’t need to submit any collateral for it.

A Top-up Loan comes with a tenure of up to 10 years but it is also dependent on the remaining tenure of your existing Home Loan. For instance, if you have just 5 years left to clear your outstanding Home Loan amount, then you won’t get a tenure higher than 5 years for the Top-up Loan.

If you’ve utilised the loan for home improvement projects, you can claim a tax deduction on the interest paid for this loan under Section 24. You can’t claim tax deductions under Section 80C for the principal amount unless you invest the loan amount for purchase or construction of a new property.

What’s the Eligibility for This Loan?

The eligibility conditions for this type of loan can vary from one financial institution to another. Generally, if you’ve availed a Home Loan, you automatically qualify for a Top-up Loan. You can either approach your existing lender or go with another one if you get a better offer. Some institutions like Bajaj Finserv not only offer a low rate of interest but also have an instant loan approval and disbursal process. However, remember that banks and NBFCs generally sanction this loan to borrowers who have a satisfactory repayment track record.

Your outstanding Home Loan amount, repayment capacity, and market value of your property are taken into account while considering your Top-up Loan application. The upper limit of the loan would also depend on these factors. During the sanction process, lenders will ensure that the sum of your outstanding loan amount and Top-up Loan amount is not more than 70%-80% of your property’s net value.

Now that you have a fair idea about Top-up Loans, you can avail one whenever you need to refurnish your house. If you need the money as soon as possible, going with financial institutions like Bajaj Finserv, for instance, would enable you to get instant loan approvals. That said, ensure that you do a thorough evaluation of your existing finances and repayment capacity before you sign up for an additional loan.

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