Applying for a home loan is one of the most common ways of financing a house in India. However, there are cases where borrowers need additional funds for other financial commitments. For this reason, lenders offer an additional loan on top of the home loan. This is known as a top-up loan. Now, many borrowers prefer going for a top-up loan rather than going for a personal loan. To understand why, you will have to first know everything about a top-up home loan.
- Opting for a top-up home loan
You can opt for a top-up home loan in two ways. One is to apply for the loan with the existing lender itself. However, if this is not an option you prefer to go with, opt for a home loan balance transfer. With this option, your loan will transfer from one lender to another, and you can apply for a top-up loan with the new lender.
- There are no restrictions with this loan
Life is unpredictable. You never know when there might be a medical emergency, an accident, or any other situation where there is a sudden need for finances. In such cases, opting for a top-up on the home loan will certainly help, as this loan does not have any restrictions on the usage of the loan amount. Please note that it is important to have a steady payment record and a good credit score to apply for a top-up home loan.
- Repayment tenure of a top-up
A top-up loan can be availed for a maximum of 20 years or until the existing repayment tenure of the home loan. The advantage of a top-up loan is that it is available for a longer repayment tenure as compared to other loans such as a gold loan, personal loan, or car loan. Please note that the tenure of a top-up home loan will not just depend on the lender but also on the borrower’s age, profile, income, as well as property value.
- Interest rate of a top-up
The interest rate of a top-up might be slightly higher as compared to a home loan interest rate. This again depends upon the borrower’s profile. However, it is still advisable to go for a top-up as its interest rate is lower than that of a personal loan, which makes a significant difference in the total cost of repaying the loan.
- There are tax benefits too!
As per Section 24 of the Income Tax Act of India, borrowers can claim tax deductions up to Rs 2 lakh on payable interests. Do note that this is applicable on self-occupied properties that are completed within 5 years. If the property you have bought does not fulfil this criterion, the amount, which can be claimed for tax deduction, will be Rs 30,000. According to Section 80C, you can also claim Rs 1.5 lakh as a tax deduction on the principal amount of the top-up loan.
Considering all these benefits, opting for a top-up loan seems like a great option if there is any need for additional financial coverage. Make sure to check with the lender about their top-up home loan eligibility criteria before applying for one.