What Exactly is a Top Up Home Loan?
You bought your new home and have moved in. Obviously, you have dried up your funds to pay the upfront deposit for the home and the EMIs are already adding to your monthly burden. But that’s not all. You also have regular maintenance and club costs. In addition, you need to set aside funds for renovation and repairs as well as for furnishing and beautification of your home.
At the time of moving, you typically postpone some of the costs to a later date. Typically, after a year or so, these costs come back to haunt you. It is time to spend some additional money on furnishing, fixtures, lightings, interiors, renovation, etc.
The big question is how do you fund these expenses.
That is where most home loan institutions offer you top up loan on home loan. These are an attractive loan on attractive terms with a longer tenure, which you can use for your home expenses like renovation, repairs, furnishing etc.
How Does the Top-Up Facility Work in Home Loans?
Most of you have by now heard of top up loan on home loan. As the name suggests, this home loan top up is over and above the home loan.
Most banks are a lot more willing to give you this top-up loan if you already have a clean record of servicing your EMIs and the value of property in your area has gone up sharply so making the top-up low on risk.
This top up facility allows you to access more money without making a massive change in your repayment structure. What is more, there is no restriction on the end use of the funds, except that you can use these funds to either invest in stocks or to speculate on other products like futures, options, or commodities. Otherwise, you are free to use the top-up loan funds for your home furnishing, business needs, education needs, and travel or holiday needs. There is no other restriction on the end use of such funds.
Longer Tenure and Lower Rates of Interest
One of the key advantages of these top up loan is that they can be disbursed quickly since there is already an existing relationship with the bank. Most banks also offer you pre-approved credit lines as top up loans which can be disbursed in as little as 24 hours.
Typically, the entire process is online. Hence, the borrower can either access their relationship account with the bank and agree to the terms and conditions of the top up loan online on their PC or on the mobile banking app.
These top up loans come with 2 distinct advantages.
Firstly, the rate of interest on such top up loans is very competitive and probably just a few bps higher than your home loan rate. The condition is that top up loans cannot have a tenure beyond the unexpired tenure of the home loan. However, most banks offer you top up loans for about 5 year or 10 years. In such cases, the lower interest rate and the longer tenure is a dual benefit to the borrower.
Speedy Processing and Disbursement
In most loans, the time taken to sanction the loan is fairly elaborate. That itself takes time as it has to go through multiple levels of approvals. Also, the disbursal takes its own time.
However, in case of top-ups the bank already has an existing relationship and the property is already mortgaged with the bank. Hence, the risk for the bank is quite low.
In fact, the loan sanction and disbursal becomes much faster if the borrower has been prompt in payment of EMIs and also if the property value has appreciation since the purchase. Most banks specify a cooling period of 1 year to 2 years before the top-up loan is sanctioned. However, if you check all the boxes, then you not only get the top up loan at attractive rates of interest and for a longer tenure; but also get it disbursed speedily.
Who is Eligible for Home Loan Top Up?
Needless to say, there are some conditions you must satisfy to be eligible for top up loan on home loan. If you have a relationship of more than 1-2 year and have been prompt in all your EMI payments, then the home loan top up should hardly pose any problem. The track record will make you automatically eligible. Normally, there is a processing and administrative fee that is charged at the time of disbursal of the top up loan. In most cases, there is no documentation required and it is purely granted based on your existing relationship and the payment track record. The process is normally fully online and can be done at the click of a button.