Top-Up on an Existing Loan
Interest Rates on Top-Up Loans Are Generally Lower Compared to Other Loans
The connection between real estate and banks is inseparable. To buy a house, one must typically take a bank loan if possible. Banks that offer home loans are also providing top-up loans. But is it beneficial to take a top-up loan on a property for which you already have an existing loan? What are the interest rates on top-up loans? Under what circumstances should one consider taking a top-up loan? What do banking experts say about these questions?
In the Telugu states, real estate business is booming not only in major cities like Hyderabad, Warangal, Vijayawada, and Visakhapatnam but also in smaller towns. Many people are taking bank loans to buy homes due to the need for their own house. Both public sector and private banks are generously offering home loans. However, banks are also providing top-up loans on existing home loans. Compared to when the original loan was taken, the value of the property and income have likely increased. Recently, banks are approaching homeowners to offer additional loans against their property. Experts suggest several factors to consider when taking a top-up loan.
Interest rates on home loans are steadily increasing. Currently, bank interest rates on home loans range from 8.40% to 9.80%, depending on the bank. While banks are competing to offer new home loans, they are also showing interest in providing additional loans to those who have been consistently paying their monthly installments on time. Compared to the interest rate on an existing home loan, top-up loans typically carry an additional interest rate of 50 to 75 basis points. For instance, if the interest rate on a home loan is 9%, the interest rate on a top-up loan could be between 9.5% and 9.75%..
Interest paid on home loans is eligible for tax deductions up to Rs 2 lakh under Section 24 of the Income Tax Act, and principal repayments are eligible for deductions under Section 80C, subject to limits. However, banking experts indicate that similar tax benefits are not available for top-up loans taken for expanding a property. They recommend opting for a home loan top-up over personal loans or gold loans when additional funds are needed. Compared to other loans, home loan top-ups generally have lower interest rates. Additionally, the repayment term for top-up loans is usually longer than that of other loans, as it is determined by the tenure of the original home loan.
Top-up loans can be used for various purposes such as expanding a home, purchasing furniture, or paying for children’s education fees. If you do not need a lump sum amount immediately, you can use the overdraft facility available with a top-up loan. This facility typically comes with a slightly higher interest rate compared to the home loan. You can withdraw money as needed over a long period and only pay interest on the amount used, which minimizes the financial burden.
All details related to existing loans are maintained by the bank. As long as the borrower provides proof of timely EMI payments, income verification, and other necessary documents, they can obtain a top-up loan. The amount available for a top-up loan depends on factors such as income, the total amount of the home loan, and the market value of the mortgaged property, according to real estate financial experts.
