Home Loan Top-Up: An Affordable Substitute For Personal Loans
A home loan is a form of financing obtained for the purchase or construction of a home from financial organisations like banks and housing finance companies (HFC). These financial organisations, commonly known as “lenders,” approve this loan following a thorough evaluation of the applicant’s eligibility. Furthermore, the loan application’s specific property’s eligibility is also taken into account.
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A home loan top-up is an option offered by the lender to borrow a lesser sum of money in addition to the original loan, typically for uses like buying appliances for the house, remodelling or rebuilding the property, or any other kind of personal use.
After purchasing a property, it could become necessary to remodel it, update the equipment, rearrange the interior design, or, in the case of an individual bungalow or villa, rebuild it entirely. The house loan lender may provide a top-up loan, which is a smaller loan amount, for these reasons. Usually, the interest rate on this loan is higher than it was on the first house loan.
How Do Top-Ups for Home Loans Operate?
Examine the instance of Ms. Mehta, a forty-year-old financial advisor who, in 2015, paid Rs. 50 lacs for a 2BHK flat in Ghaziabad with a house loan of Rs. 40 lacs over 20 years at an interest rate of 9%. She makes 36,00 EMI payments.
After five years, as her children grew older, she felt the need to update and refinish the house to suit her children’s tastes and comfort levels. This work was estimated to cost approximately Rs. 3.5 lacs. Rather than choosing a personal loan, she went to her bank to get a top-up of Rs. 4 lacs on her existing home loan.
The bank gives her the requested top-up of Rs. 4 lacs after evaluating her ability to repay the loan and her track record of doing so. The bank levies a 10% interest rate for this. As a result, the five-year EMI for this top-up loan is Rs. 8,500. This sum is added to the Rs. 36,000 initial Home Loan EMI.
The Home Loan Top-Up’s features
The following characteristics of a house loan top-up
Long-term: Because a top-up loan’s payback time can be extended up to 20 years, it allows for a more manageable repayment of the borrowed amount than a personal loan.
Larger loan amount: Indian banks permit a top-up loan of up to 50 lakhs. Still, the outstanding mortgage should fall within the confines of the bank’s policies.
Lower interest rate: It is advised that the borrower choose a top-up in case of emergency because the interest rate offered on a house loan is lower than the interest rate on a personal loan.
No need for security: Security is not required because this is a top-up loan applied over an existing house loan. Therefore, extra security is not required.
Fast processing: Since there is no need for extra paperwork or a verification procedure, obtaining a top-up loan is quicker than applying for any other kind. They are therefore simpler to obtain.
Satisfies a number of requirements: A top-up loan can be taken out for any reason, including a wedding, home improvement, business venture, or education.
Interest Rates for Upgrading a Home Loan
Banks often offer higher interest rates for top-up loans than for standard home loans, but lower rates for standard personal loans. Bank to bank differences exist in the interest rates and lending amounts for Home lending Top-up.
The range of interest rates that some of India’s largest banks were charging for their Home Loan Top-Up programmes as of November 20, 2023, is listed below:
| Bank | Home Loan | Home loan top-up | Personal loan |
| Axis Bank | 8.70% – 9.10% | 14% | 10.49% – 22% |
| State Bank of India | 8.40% – 10.15% | 9.10% – 9.30% | 10.90% – 11.30% |
| HDFC Bank | 8.50% – 9.15% | 9% – 9.65% | 10.5% – 24% |
| Bank of Baroda | 8.60% – 10.50% | 8.80% – 10.65% | 10.50% – 12.50% |
| ICICI Bank | 9.25% – 10.5% | 9.25% – 10.7% | 10.5% – 16% |
Additionally, Baroda Home Suvidha, a personal loan issued in conjunction with standard home loans by Bank of Baroda, can be used to pay for ancillary expenses including Goods and Service Tax, stamp duty, registration fees, club membership fees, home insurance, and home loan insurance. This loan has an initial interest rate of 7.25%.
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For whom is a Home Loan Top-up appropriate?
The primary need to be eligible for a house Loan Top-up is to have an active house loan with that specific bank. If a person already has a house loan with another bank, they are not eligible to apply for a home loan top-up from that bank.
Furthermore, banks have their own standards for approving home loan top-ups. Among them are, for example:
- For a minimum of three years, the home loan EMIs were supposed to be paid on a regular basis.
- There should be a minimum of five years left on the home loan.
- The applicant’s credit score should be at least 550.
Tax advantages for a top-up on a home loan
Interest: Under Section 24B of the Income Tax Act, a maximum of Rs. 30,000 may be claimed as an income tax deduction for homes that are self-occupied and for which a home loan and top-up are taken out. However, in a single fiscal year, the maximum amount that can be deducted under section 24B is Rs. 2 lacs.
Should the residence where the home loan and top-up are obtained be rented or leased, the whole amount of interest paid may be deducted over the course of eight fiscal years. However, this should not exceed the Rs. 2 lacs section 24B cap in a single fiscal year.
It should be highlighted that only if the money is utilised for property repairs, renovations, or reconstruction is this interest eligible for deduction. This amount cannot be deducted if it is utilised for anything other than home improvement or repair.
Principle: The principal amount cannot be written off if the Home Loan Top-up is utilised for property repairs, renovations, or rebuilding. On the other hand, section 80C of the Income Tax Act allows for the repayment of the principle if the top-up was utilised to build or buy a new property. However, the maximum deduction permitted by section 80C is Rs. 1.5 lacs for any fiscal year.
Some important things to think about while applying for a home loan top-up
- Typically, the Top-up loan’s payback period is set at 10 years, or the remaining Home Loan tenure, whichever comes first. In addition, several banks provide a 20-year payback term, but only for the duration of the home loan.
- Despite the fact that the Home Loan Top-up is handled as a personal loan with no restrictions on its use, it is not permitted to utilise this loan for any unlawful, speculative, or gambling activities.
- Depending on the bank, processing fees can be anything from one to two percent of the top-up amount that was applied.
House Top-up Loan: conclusion
It’s a wise move to choose a top-up loan over an existing house loan. These loans offer a longer repayment period and can be obtained for less money. As a result, the borrower is free to repay the amount gradually and without hardship. These loans can be use for any purpose and can be obtain in place of personal loans, which often have higher interest rates. Furthermore, because top-up loans are available over the current loan and do not require additional documentation submission or verification, they are also simpler and faster to handle. Although they are sensible to choose, it is advised that the borrower compare the interest rates offered by all reputable banks and select the one with the lowest rate.
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