It can so happen that you might need a loan to renovate your home or build a home. But what happens if you are already servicing an existing home loan? In such cases, you can avail a top up loan. A top-up loan is a loan that you can gain on top of your existing home loan. The tenure of your top-up loan is completely dependent on you.
You can avail a top up loan only if you have been servicing your housing loan for a few years now. The bank approves your top up loan only after a few years because it gives the bank an idea about you repayment ability and if you have a good repayment track record. If you have never defaulted on repayment of your debt then the financial institutions or lenders will be more forthcoming to approve your Top Up Loan application.
Once you start the repayment of your home loan, the outstanding amount automatically decreases. Availing a Top Up Loan will help you in using the funds from the proceeds for something that might need your urgent attention.
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Utilizing a Top Up Loan:
Top up loans can act as a blessing for someone who urgently needs the money for something important. A top-up loan is similar to a personal loan but top up loans offer better rates of interest as compared to personal loans. You can use this top up loan for anything that you want like renovating your home, paying for your child’s education or even building a pool in your backyard.
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Eligibility:
You are eligible to avail a top up loan only if you have an existing home loan and if you have been servicing the home loan for some time now. The conditions that are put forth by the bank can vary depending on the financial institutions or lenders. It is extremely important that you have a very good track record in repaying your existing home loan.
Not all financial institutions or lenders provide top up loans and again the terms offered differ depending upon the bank. It is advised that you approach the same bank where you are servicing your existing home loan. But if your bank does not provide a top-up loan, you can think about transferring your home loan to a bank that will provide you with a top up loan.
The amount of top-up loan that you can avail is dependent on the market value of your property, your ability to repay a loan and the upper limit of top up loan amount that is offered by the bank.
Tax benefits depend on the purpose for which you use the loan. A borrower can avail tax benefits if he uses that top up loan to renovate his house or acquire a space for the existing home.
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The Difference Between Top Up Loan and Personal Loan:
Availing a home loan is a better option as compared to a personal loan. If you have a home loan, it is easier for you to get a top up loan on your existing home loan as opposed to a personal loan. You can avail a tenure of somewhere between 10 to 20 years for a top up loan whereas the tenure of a personal loan is only 1-2 years.
The rate of interest offered by a top-up loan is less as compared to a personal loan. The Equated Monthly Installments (EMIs) that you have to pay in case of a top-up loan is less as compared to a personal loan.
Before availing any type of loan, it is necessary that you do a proper research. Always opt for a Home Loan that offers you a lower rate of interest as having a low rate of interest will help you save a lot of money in the future. The repayment of any type of loan takes a lot of discipline and patience and you need to manage your finances properly in order to repay all your debt.