Top-up loan - 7 things to know.

What is a top-up loan.

A top-up loan is a loan given on an existing home loan. 

Infact, a top-up loan is an incremental loan on an existing home loan given to the existing customer at a current ‘rack rate’ of  the home finance company or bank. The rack rate is usually 1-1.5% higher than home loan rates.

1. Who is eligible for top-up loans.

The top-up loan is available for only the existing customers. The customers should have done atleast 6 or more repayments and should have a good track record of repayment.

2. How much top-up can you get.

It varies from lender to lender. 

• Some  have a cap, say, they look at the current price of your property less the amount of home loan you owe. For e.g., Your property costs 60 lakhs and you got 80% loan at 10% interest. Then the loan amount is 40 lakhs. Supposing you repayed for three years. 

Then the top up is provided on (The amount of the initial home loan) - (outstanding principal amount). 

• Some provide amount up to 100% of the original home loan. Like Standard Chartered, HSBC, Citi Bank, ICICI Bank.

3. Tenure

The tenure of the top-up loan can go up to 15-20 years, depending on your home loan's term. As it is offered only to existing customers, the maximum tenure could be the same as the balance repayment period. 

4. Interest Rate

The interest rates are relatively higher when compared with home loans and lesser than the personal loans. Usually it is 1.00% to 1.50% higher than the home loan interest rate.

5. Fees

Banks usually charge a processing fee that is the same as that on their home loan offering. If you have been a good home loan borrower, which means you have paid your instalments on time and have a favourable credit report, the fees may even be waived by some banks.

6. Why Should you Opt for a Top-up loan / Advantages

• If you are in urgent need of funds, like for education or child's marriage or even if you want to renovate your house or furnish it, top-up loan is the best solution.
• Compared to other alternatives such as personal loans, a top up gives you a better deal when it comes to interest rates and processing fees, so you can leverage your existing home loan to help you save costs
•  A Top Up Loan allows you to repay over a longer tenure compared to a personal loan, helping you to keep your monthly outflow low.
• The process is simple, quick and hassle-free as the documentation is already done earlier. 
•  It does not require collateral.

7. Disadvantages

• It is not approved for those who have a poor track records of repaying the loan.
• It is the bank’s discretion to approve the loan and the number of EMI’s to be repaid before being eligible for getting the top loan.
• Not all the banks have this option. 

              So you have an option to transfer your home loan to another lender and get a top-up loan. 

Hence, when you weigh the advantages and disadvantages, it is obvious that opting for a top-up is the best. The purpose may be anything either renovating your home or medical expenses or any emergency needs.There are banks who disburse top up loans equivalent to that of home loans while some have a cap on the amount being lent. Some banks may ask to mention the reason for top-up loan just to avoid illegal usage. So a careful and detailed research is to be done, on your purpose of top-up, as well on the banks you can consider, before going for a top-up loan.