Factors to Consider When Evaluating Home Loan Top-up Lenders


Most people are aware of home loans, but what is a top-up loan on a home loan?

You can borrow additional money beyond the amount of your current house loan with a top-up loan for a mortgage. It is made available by banks and other financial organisations to homeowners who have already repaid a specific portion of their mortgage.

You must have made a particular number of EMIs (Equated Monthly Instalments) to qualify for a top-up loan and have a solid repayment history on your current house loan. The loan amount you can obtain as a top-up loan is often a portion of the property’s current market value, less the remaining debt of your mortgage.

Top-up loans typically have higher home loan rates than standard house loans because lenders view them as being riskier. They are still less expensive than unsecured loans such as personal loans, nonetheless.

The benefit of a top-up loan is that it gives you access to more funds without requiring you to go through the lengthy and time-consuming home loan application procedure again. If the loan amount you initially borrowed was insufficient to pay for them, you can utilise a top-up loan to pay for anything, including house registration fees, brokerage fees, or maintenance costs.

The top-up home loan has numerous advantages.

  1. Lower interest rates: Compared to other loan types like credit cards or personal loans, top-ups for home loans often have lower interest rates. This makes taking out a bigger loan a more reasonable choice.
  2. Easy to avail: If you already have a house loan, you can quickly obtain a top-up loan by applying to your lender. Since you already know the lender, the procedure might go more quickly and without a hitch.
  3. Flexible end-use: A top-up home loan can be used for any personal or professional goals, such as home renovation, education, debt consolidation, or emergency needs, in contrast to a home loan, which can only be used to buy a property.
  4. Longer repayment terms: Top-up Home loan often have longer repayment terms that can go as far as your existing home loan’s remaining term. This gives you more time to pay back the loan because the EMIs become more reasonable and cheaper.
  5. Tax advantages: Section 24 of the Income Tax Act of 1961, which enables you to deduct up to Rs. 2 lakhs for the interest paid on the loan in a fiscal year, also applies to home loan top-ups.

A top-up home loan can give you a method to borrow more money while reaping several financial advantages. Before obtaining a house loan top-up, you should carefully assess your financial status and ability to make payments because defaulting on the loan could have detrimental effects.

The eligibility criteria for a top-up home loan vary from one lender to another, but the following conditions need to be met!

  1. The lender requires that you already have a home loan with them.
  2. You should have an acceptable credit score and a solid repayment history.
  3. Since you took out your initial mortgage, the value of your home should have increased.
  4. You must have finished making payments on your current mortgage for a predetermined period, typically at least 12 months.
  5. You should meet the lender’s requirements in terms of your income and employment stability.
  6. You should adhere to the loan-to-value (LTV) ratio restrictions set by the lender, which is the ratio between the loan amount and the property’s market value.
  7. The top-up loan’s intended use, such as house renovation, educational fees, medical costs, etc., should be legal.

It’s crucial to remember that just because you meet the requirements doesn’t mean your application for a top-up home loan will be accepted. Your application will be evaluated by the lender based on several criteria, such as your ability to repay the loan, your creditworthiness, and the loan’s intended use.

What are the documents required for getting a Top-Up home loan?

When applying for a top-up home loan, the documentation required may vary for every lender. However, some of the common documents that you may be required to submit are as follows:

  1. Identification proof: A current, legally issued ID document, such as an Aadhaar card, passport, driver’s licence, or voter identification card.
  2. Address proof: A valid proof of address such as an Aadhaar Card, Passport, Driving License, Voter ID card, or Utility bills (electricity, water, or gas) not older than 3 months.
  3. Property documents: You will need to provide the original documents related to your property such as the sale deed, property registration certificate, property tax receipt, etc.
  4. Loan account statement: A summary of your current home loan account, including information on your history of repayment.
  5. Documentation of income: Most recent pay stubs, bank records, income tax returns, or Form 16 if you are a salaried worker. In the case of self-employed individuals, income tax returns, profit and loss statements, balance sheets, and other financial statements may be required.
  6. Other documents: Apart from the aforesaid documents, you may be required to provide other documents such as pictures, declaration of assets and liabilities, and others as per the lender’s criteria.

What are the steps we need to follow to apply for home loan?

A top-up home loan application is simple to complete.

  • Apply for the top-up loan directly at the bank branch where you currently have a home loan account.
  • Apply for the top-up home loan online by logging into the bank’s website. Simply provide your contact information, and a bank representative will get in touch with you.

What are the tax benefits of Home Loan Top-Up?

The following are a few tax advantages of a house loan top-up:

  1. Tax benefits for home improvements: Section 24(b) of the Income Tax Act of 1961 may allow you to claim a tax deduction if you have taken out a top-up loan for house renovations. The interest paid on the loan amount is eligible for this deduction up to a limit of Rs. 30,000 each fiscal year. The tax deduction cap is only set at Rs. 2 lakhs per fiscal year if the loan is utilised to build or buy a new property.

2 Tax benefits for business reasons: Section 37(1) of the Income Tax Act allows you to claim tax advantages if you have taken a top-up loan for business purposes. You can deduct the interest you paid on the top-up loan from your taxable income by claiming it as a business cost.

  1. Tax benefits for consolidating personal loans: If you have taken out a top-up loan to pay off credit card debt or current personal loans, you might not be qualified for any tax advantages. However, you can take advantage of the top-up loan’s lower interest rate because it is lower than the interest rate on credit cards or personal loans.

Before accepting a home loan top-up, it is advisable to speak with a tax professional or a financial counsellor to fully understand the tax ramifications.

Considerations to Make When Assessing Top-Up Home Loan Lenders:

When requesting a home loan top-up, there are a few things to keep in mind. These consist of:

Rate of Interest: There is a chance that the interest rate on a top-up home loan you apply for from an existing lender will be higher. This is why you should do enough study to compare the interest rates charged on housing loans by various banks.

Loan Term: Existing clients frequently receive lengthier terms from lenders. The home loan top-up repayment period, however, is typically shorter than the home loan’s designated period.

No Prepayment Penalty: The top-up home loan’s most remarkable feature is that there is no prepayment penalty.

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