Real estate and banks share an inseparable bond. To buy a house, it is often necessary to take a bank loan. However, banks that offer home loans are now providing top-up loans as well. But is it advisable to take a top-up loan on a property that already has a loan? How do interest rates work for top-up loans? When should one consider taking a top-up loan? What do banking experts say?
In the Telugu states, many people are taking bank loans to buy homes, especially in cities like Hyderabad, Warangal, Vijayawada, Visakhapatnam, and even smaller towns, due to the increasing demand for personal homes. Both public and private sector banks are readily offering home loans. However, even after taking a home loan, banks are now offering top-up loans. Compared to when the original loan was taken, the value of the property and income of the borrower have likely increased. As a result, banks have been reaching out to homeowners, offering to provide loans on their existing property. Experts suggest that several factors need to be considered when deciding to take a top-up loan.
Bank interest rates on home loans have remained stable. Currently, home loan interest rates start at around 8.5% depending on the bank. On the other hand, with banks competing to offer new home loans, they are also offering top-up loans to those who have been paying their monthly installments on time. However, the interest rate on a top-up loan is generally 50 to 75 basis points higher than the interest rate on the original home loan. For instance, if the interest rate on the original home loan is 9%, the interest rate on a top-up loan could range from 9.5% to 9.75%.
According to Section 24 of the Income Tax Act, a tax exemption of up to Rs 2 lakh is available on the interest paid for home loans, and principal repayment is eligible for deduction under Section 80C, subject to limits. However, experts in the banking sector indicate that such tax benefits do not apply to top-up loans unless the loan is specifically for home extension purposes.
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Experts also advise that in case of urgent money requirements, it is better to choose a home loan top-up rather than personal loans or gold loans. The interest rate on a top-up loan is lower compared to other loans. Furthermore, depending on the home loan tenure, the top-up loan period will also be decided, usually providing a longer repayment period compared to other types of loans.
Top-up loans can be used for various purposes such as home expansion, purchasing furniture, and paying fees for children’s education. If you do not need the entire amount at once, you can also use the overdraft facility within the top-up loan. However, the interest rate on the overdraft facility may be slightly higher compared to the regular home loan. The advantage is that you can withdraw money as needed for the long term, and interest is charged only on the amount you use, which means the burden on the borrower remains low.
Banks will already have all the details related to the borrower who has taken the previous loan, such as EMI payment history, income verification, and other documents. Once the borrower provides these documents, the bank will decide the loan amount based on factors such as income, total home loan, the market value of the mortgaged property, and other relevant factors, as stated by experts.
