What are the Top-Up Loans?
Life does not follow a pattern, and the events you come across are usually unexpected. So let me ask, what if the case arises where you have to cough out extra money? You may already possess a home mortgage and plan on acquiring an additional one in case some sudden spending need arises. But there’s no need to take out another loan! You can now increase the amount on this loan up to the needed amount, which is far simpler than getting a new loan. Here is everything you need to know about increasing the amount on your current home loan.
How do Top-Up Loans Function?
Generally, when you secure a home for the first time, the amount offered has an upper limit of eligibility. If you are already a member and have exhausted the limit set, it is doubtful that an additional loan will be approved immediately. However, some of your income might have been accrued through patience or the repayment of some of your loan installments. Because of these circumstances, the repayment of some variables can result in an increase in the original loan amount sanctioned. Under these conditions, it will be possible to increase the amount on the current home loan.
Most home loan policies typically allow for a top up option only after 6-12 months of servicing the prior loan. If the borrower is able to demonstrate strong repayment history, the top-up option on the home loan can be offered to them. A lender will assess the necessity of the top-up and those decisions remain with the lender.
Reasons to Take a Top-Up Loan
Here are some of the reasons for which you can opt for a top-up on your existing home loan:
- This can also be termed as personal loan.
- To buy another house.
- To buy another piece of land.
- For home improvements.
- For purchasing household items.
- For the education/marriage of your child.
- For your business.
- To address health care needs.
Benefits of Top-Up Loan
When you choose to top up your existing loan, none of your property has to be pledged. But do take note that in order to get the documents back in your possession, both the original loan and the top-up loan have to be repaid.
You may be eligible for deductions on a top-up loan if the additional loan amount is used specifically to purchase a house or for home improvement. Any other reason does not have any tax advantages.
Each bank has a top-up limit which can be between 15-40 lakhs, and you can avail this amount against your eligibility and the amount you have already borrowed at the beginning. For example, If you borrowed a loan of Rs 30 lakhs and the top-up limit is Rs 60 lakhs, you should be able to take the top-up of additional Rs 30 lakh loan on the same property.
Most of the banks have a top-up loan sanctioning fee which is usually the same as their mortgage loan fee. For example sometimes a bank charges 0.75% on the amount of the loan or Rs 2000 – whichever is more as the processing fee for top-up loan.
For a top-up loan, home loan interest rate is usually the only range between 1.5%- 2% more than the other top up loan rates, which can be between 11.5% to 14% while a personal loan comes t a higher amount percentage.
Personal Loan vs. Top UP Loan
Regarding personal loans, the interest rates often range between 18 and 24%, but home loans already have an established interest rate. Regarding personal loans, one can easily figure out that topping off one’s existing loan advantageously exceeds the cost-effectiveness of a personal loan. In this case, do not forget that on condition that you have a good repayment history, you can increase the amount of your existing loan Exactly so, a top-up loan is simply a more advanced option indeed to answer why you should always prefer a top-up loan as opposed to a personal loan.
Conclusion: A Preferred Option in Today’s Market
In today’s modern times, one of the current trends is taking out a top-up loan and no, this is not placing any form of advertisement. Every country provides its citizens with home loan policies, in Canada for instance, there are multiple institutions that offer loans while having some clear policies in such regard. Hence, as long as you maintain a clean record, you will always know that in case a need arises, you will always be covered through your pre-existing loans and a sufficient increase percentage. Whenever you’re required to seek out a mechanism on how to navigate through top-up forms, consider your expectations and future visions in your requested loans.
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