When a person takes a home loan, it is for buying a new property or purchasing an under construction property. The loan amount is solely utilized for this purpose. After few years of repaying the loan if an emergency strikes, the person might need additional funds. To avail a large amount, they don’t need to take a personal loan where the rate of interest would be high. They can avail a top-up loan on the existing home loan where the rate of interest will be low.
What is a Top-Up Loan?
A top-up loan is a loan given on your existing home loan. You can avail this facility from the same bank after your eligibility criteria is fulfilled. This criterion is set by the bank and is directly related to your repayment history of the home loan.
How much amount can I get as a Top-up Loan?
The top-up loan amount differs from lender to lender. Generally, a top up loan amount + your existing home loan amount cannot exceed more than 70-80%* of current market value of the property.
What are the benefits of a Top-Up Loan?
Quicker approval – Since you already have an existing loan from the same bank, you can expect a quicker approval for the top up loan.
No limitation on spending – You can use the money gained from this loan for any purpose like buying furniture, renting a parking space etc.
Lower Interest rate – You can avail a top up loan instead of personal loan as the interest rates are comparatively lower for top up loans.
No mortgage required – Generally, if you have opted for home loan and then apply for top up from the same bank, they don’t ask for mortgage.
Tax Benefits –You can avail tax benefits on top up loans. In the income tax act, you can avail deductions for home improvement under section 24.