Home loan top-ups are additional credits that are availed over and above the existing home loan amount. These loans offer easy access to additional funds without any end-use restrictions. Just as home loans, top-ups to come with specific tax benefits.
Tax Benefits on Top-Up Loans
Home loan top-up also provides you with tax benefits. You can avail tax deductions up to Rs. 2 Lakh only on payment of interest of your top-up loans. However, a borrower will be eligible to claim deductions only under the precondition that the top-up loan is being used for repairs and renovation purposes.
If you are using the funds for any other purpose, you will not be eligible for the benefits.
Other than tax benefits, home loan top-ups come with numerous customized features as well such as –
Hassle-Free Approval: Perhaps the essential benefit is the quick disbursal of funds. This is because the loan requires minimal documentation, which speeds up the process. It is of utmost importance in scenarios of urgent fund requirement.
Independent Use: These loans do not have end-use restrictions. Even though they are taken over existing home loans, they can be used for a range of different purposes like financing marriage ceremonies, higher education, business expansion projects, etc.
All lenders do not provide the option of top-up loans. You can learn about loan balance transfer for a clearer understanding of the process. It offers many benefits to borrowers like availing top-up loans at lower interest rates from a different lender.
Features of Top-Up Loans on Home Loans
House loans come with various borrower-friendly features. These features make them a popular refinancing option.
Minimal Documentation: The documents required for home loans collected at the time of availing the first loan suffices for the top-up loan.
Tenure: The highest tenure you can opt for a home loan top-up depends on the remaining period of the existing loan tenure.
Amount Disbursed: The value of funds that can be availed with a top-up loan does not exceed 80% of the market value of the property. However, the upper limits of these loans depend on lenders.
Interest Rates: The interest rates charged on these loans are generally a few basis points higher than the original interest rate of home loans. However, you can go for a loan transfer to reduce your top-up loan interest rate obligations by going for a lender that provides lower interest rates. Leading lenders provides the Balance Transfer facility.
Here are some additional factors you should keep in mind to apply for a top-up loan.
If your current lender does not provide top-up loan facilities, you must be able to ask for a home loan transfer.
You must have availed a home loan from the same financial institution in the past.
You must be regular with your EMI payments. That is, your track record of timely EMI payments should be satisfactory to the bank.
If you are planning on availing a top-up loan, you must carry out thorough research and analysis of different lenders. You should be aware of your financial capabilities and obligations and then opt for a top-up loan.
Individuals can also make use of a top-up loan calculator to determine the amount they are eligible for. Remember, tax benefits will only accrue when you use the fund for repairs and renovation purposes.