Owning a home is a dream that many individuals aspire to achieve. A home not only provides a sense of stability and security but is also a valuable investment asset. Sometimes taking a home loan isn’t sufficient enough to cover the various additional expenses you might incur while purchasing a home. From construction expenses to debt consolidation, the list of potential expenses you might acquire is endless. Thus, in order to tackle and settle this problem, top-up home loans act as a viable solution.
A top-up home loan is an additional loan facility which allows homeowners to borrow against the equity they have built up in their property. For example, if you’ve taken a home loan a few years back to purchase a property, but now need more funds for renovations and educational expenses. Instead of applying for another loan, you can opt for a top-up loan instead.
The prime benefit of top-up home loans is that they allow the borrower to access supplementary funds without applying or undergoing a separate loan process. Top-up loan benefits include lower interest rates since there’s reduced risk for the lender, flexible use of funds which can be used for multiple purposes, and extended repayment tenure along with lower monthly installments.
In contrast, while top-up home loans aid in raising funds, there are no tax advantages available if it is obtained and utilised for personal purposes. Additionally, the top-up loan amount is restricted to 70-75% of the property’s market value. If the value of housing property appreciates, the top-up loan amount will stay constant; leaving the borrower limited to that particular sum.
Home loans and top-up home loans are not to be mistaken for each other. While the borrowing capacity for a loan is limited between 80-90% of the total property value, top-up home loans are calculated using the property’s estimated market value, minus the outstanding loan amount. Further, top-up home loans increase the value of EMI payments but are often repaid faster.
To apply for a top-up home loan, you need to fill in an application form with your home loan lender and meet the eligibility criteria listed below.
Although the eligibility for top-up home loans varies from financial institution to institution, the fundamental criteria remain the same.
A top-up home loan can be a valuable financial tool for homeowners looking to access additional funds for various purposes. With lower interest rates, flexible use of funds, and streamlined application processes, it offers convenience and financial flexibility. However, it's essential to approach a top-up loan with careful consideration. Evaluate your financial needs, compare lenders, assess repayment capabilities, and seek professional advice when necessary. By doing so, you can leverage the benefits of a top-up home loan while maintaining a healthy financial position and safeguarding your home as a valuable asset. Remember to borrow responsibly, prioritize timely repayments, and use the funds wisely to achieve your financial objectives effectively.