Top up loans refer to the credit available to borrowers over and beyond their home loan. If a customer requires financial assistance while he/she is repaying a home loan, they can consider availing a top-up loan instead of any other loan.
Such loans involve minimal paperwork and documentation, primarily because a consumer is availing the credit from their home loan provider. Therefore, the financial institution already possesses detailed information belonging to the borrower.
Features of a top-up loan
Those availing a top up loan can expect the following features from the same –
- Attractive interest rates
Top up loans come with no end-usage restriction. Further, you need to pay minimal interest on the debt. Thus, repaying such an advance is simple, considering that you already have an outstanding home loan. Compare top-up loan interest rates for hassle-free repayment.
- Substantial loan quantum
Another aspect you need to know about home top up loan is that the amount a borrower is eligible to avail depends on the price of his/her property in question. The maximum sum tends to differ between the various HFCs. In most cases, the top up on home loan quantum and the outstanding home loan amount should not exceed the property’s valuation by 70%.
- Tax benefits
Those availing top up loans are eligible for tax deductions, but only in a few cases. For instance, if you avail this loan to renovate or extend your home, you can claim tax exemptions under Section 24(b). In such cases, the income tax benefits will be limited to Rs.30,000 on the interest paid.
- Flexible loan tenor
The tenor for a top up loan is equal to the remaining tenor for the outstanding home loan. For instance, if you have availed a 10-year long home loan and availed a top-up loan after 2 years of repayment, the top up loan tenor would be 8 years.
Borrowers availing top up loans can expect a range of features from the credit. They can utilise such credit to fulfil their urgent financial needs.
Eligibility criteria for top up loans
Since you already have an outstanding home loan with the financial institution, becoming eligible for top up loans is easier. Lenders check the following factors before approving these loan applications.
- Ability to repay both loans at once – An applicant must have the necessary financial backing to repay the existing home loan, along with the new top up credit. To determine this factor, financial institutions check the consumer’s income, debt-to-income ratio, etc.
- Credit score – A consumer’s credit score is important regardless of the type of loan they are looking to avail.
Calculating top up loan liability
As with all loans, one should calculate their exact liabilities before availing the said loan. Online top-up loan calculators can ease this process, letting consumers know exactly how much they would need to bear as EMIs against this line of credit.
Such tools are immensely helpful when comparing the rates and other factors of top up loans from various lenders. Utilise the calculator to pick the best option and reduce repayment burden.