Top up loans are a type of discounted secured' personal loan given for a longer duration to existing home loan borrowers
Suppose if you already had an existing home loan outstanding of Rs.3 lakhs and was looking at raising another Rs.2 lakhs for the education fees. Instead of going in for another loan product, you can raise an additional loan amount using your home loan. This will help you to save a lot of additional paperwork, was processed much faster and at better rates.
How does it work? Commonly called a 'top-up loan', it is an additional loan extended to existing home loan borrowers. No questions are asked about the end usage. So, whether you use it to fund your home improvement plan or purchase of a car, son's education or any other purpose, no questions are asked.
So if you have a good repayment track record, chances are your financer will be more than happy to lend you some more money at better than prevailing market rates.INTEREST RATES
As against a personal loan where the interest rate can range from 12 percent to 20 percent or a consumer or car finance loan where the interest rate can be around 12 percent, the interest rates of a top up loan are very close to your prevailing home loan interest rate. So, your top-up loan may cost you around 8.5 to 9 percent. Besides the processing charges are also lower at around 1 percent.LOAN AMOUNT
The loan amount you raise depends on the customer type (salaried individual or a self employed individual or a professional) you fall into.The top up loan amount could also depend upon the outstanding loan amount or the revalued property (taking into account its current market
value). Financers like HDFC and IDBI Bank may extend a total home loan plus top up loan up to 70-85 percent of the value of the property (minus your outstanding home loan balance) while ICICI Bank chooses to offer a top up loan of up to 20 percent of the original borrowed amount.
Borrowers will find lenders willing to extend top up loans in the scenario where property rates are appreciating.That's because even as you repay your original home loan the value of your property is steadily increasing.TENURE
The tenure of a top up loan could match the remaining outstanding years in your home loan. Say if you home loan is outstanding for 6 years, you can take a top up loan for a tenure of up to 6 years. Compare this to the other financing options; the tenure would be maximum 2-3 years.
A longer duration helps where you are on a tight budget and are just managing your regular home loan repayments and other expenses.Though on the flip side you are paying more interest. Besides, there is no tax benefit on this loan unlike the regular home loan borrowings.