Home Loan Top Up: Best Way To Meet The Need For Extra Funds
Many times after availing of a home loan and having paid the monthly installments for a few years, you might need more funds to address various housing problems. Or you might need to simply renovate your house. In such cases, instead of applying for a fresh loan, you can opt for a Top Up Loan on your existing home loan. This is an easier and faster way to arrange the required funds.
The Top Up Loan meaning suggests that it is a loan that financial institutions provide to their existing home loan customers. Some banks give a Top Up Loan only for housing-related requirements.
How Does a Top Up Loan Work?
When you apply for a home loan for the first time, you have certain home loan eligibility that you can use. If you have used up your loan limit, you are not eligible for another loan right away; however, if you have paid back some of your loan and your income has increased, your loan eligibility may have increased over time. At that point, you are eligible for a Top Up Loan in addition to your existing home loan.
However, your loan eligibility changes only after some time has passed. And that’s why, usually, banks will allow their existing home loan customers to borrow a Top Up Loan only after 6 to 12 months of repaying the previous loan. Apart from this, there are some important factors for qualifying. To be able to get a Top Up Loan, you must have a good repayment history. The lender has the final say, so your overall track record and relationship with the lender can also impact the decision. The purpose for which you need a Top Up Loan is also taken into account.
Top Up Loan Interest Rates
When compared to home loans, Top Up Loans have a higher interest rate. They are frequently regarded as the best substitute for new loans with interest rates ranging from 13.5 to 16 percent. The interest rates on Top Up Loans can vary depending on the loan amount you seek from the bank.
Eligibility for a Top Up Loan
Banks calculate home loans based on the property's market value. If the loan amount is greater than 30 lacs, they can lend up to 80% of the loan amount. Banks will only approve a Top Up Loan if it is possible to extend more credit under the Loan to Value framework. That is if it is up to 80% of the property's market value. They will also consider your monthly EMI after you have taken the home loan, as well as the fixed obligation to income ratio for your Top Up Loan after deducting the installments of your current loan.
Are There Any Restrictions On A Top Up Loan?
• To qualify for a Top Up Loan, you must have a home loan with a bank/HFC
• Banks only make such loans available after 6-12 months or a few years of satisfactory repayment on a home loan. Before such a loan is offered, some banks may impose an additional condition of completion/possession of the house
• The permitted Top Up Loan amount is 70-75% of the property's current market value less the outstanding home loan amount
• A few banks may limit the loan amount to the original sanction amount, that is, the sum of the Top Up Loan and the outstanding home loan must not exceed the original home loan sanction amount
• The tenure is limited to the original loan's outstanding tenure. If you have 8 years left on your home loan, the term of your Top Up Loan will not be longer than 8 years
• There will be no additional security requested
Top Up Loan Calculator
You must keep in mind that banks base their loan calculations on the market value of the home. If the property is worth more than Rs 30 lakh, banks in India only lend 80% or less of its market value. You must also have good credit to take on the added responsibility. After accounting for your ongoing home loan's Equated Monthly Instalment (EMI), banks will determine the amount of the Top Up Loan. You can also check your eligibility for a Top Up Loan using a Top Up Loan Calculator available on all banks’ and HFC’s websites. The Top Up Loan Calculator will immediately help you determine your EMIs, based on the rate of interest, tenure, and loan amount required.
The bank will calculate your Top Up Loan Fixed-Obligation-to-Income ratio (FOIR) after subtracting the payments for all of your running obligations.
In short, a Top Up Loan is a wiser alternative than a personal loan. If you already have a home loan and have a clean and good track record of payment in the past, you have a much better chance of getting a Top Up Loan. You can also get a decent Top Up Loan amount if you have already completed 3-4 years of your home loan repayment. Given that some loan interest rates can range from 18 to 24 percent, it is always a good idea to look into Top Up Loan.