Banks and real estate sector share an inseparable bond. It is customary for the prospective home buyers to avail themselves of house loan from banks. But, the banks also sanction top-up loans to customers. Is it advisable to avail the top-up loan by the existing customer on the house mortgaged to banks? What would be the rates of interest on the top-up loans? Under what circumstances the top-up loan facility should be availed by customers? Besides the cities like Hyderabad, Warangal, Vijayawada and Visakhapatnam in Telugu states, the real estate is booming in tier-II cities too. Many prospective buyers are availing bank loans to purchase properties.
Both the government sector and private sector banks advance loans to them. The banks are also offering top-up loans to the existing housing loan customers as they banks are confident that the income level of their customers would have increased since the days when they obtained the housing loan. The banks are contacting the housing loan customers in this regard. However, the experts indicate that several aspects should be taken into consideration to avail the top-up loan.
The rates of interest on housing loans are on the rise and almost touched 9%. The banks, which vie with each other to advance loans, are inclined to give additional loan to the customers going by their impressive track record of the repayment of the loan. Depending on the banks, the top-up loans carry and additional interest of 50 to 75 paisa. It would mean the top up loans carry a rate of interest that ranges between 9.5% and 9.75% provided the rate of interest at which the housing loan is availed is 9%.
Moreover, the interest payable on the housing loan carries IT exemption as per the 80C of the IT Act up to a maximum of Rs 2 lakh. Except the loan availed to expand the house, the top-up loan did not enjoy any tax exemption. When one needs money, top-up loan is the best choice compared to gold loans, personal loans and borrowing from others as the rate of interest on the top-up loans would be very less. Depending on the housing loan duration, the top-up loan duration would be determined. Therefore, the duration of the repayment of the top-up loans would be higher compared to other loans.
Top-up loans can be availed for expanding the house, to purchase furniture, to pay college or school fees of children. If the amount is not required in lump sum, the customer can opt for overdraft facility, which carries a higher rate of interest compared to the housing loan. For a long period of time, the customer can draw the amount only when needed. The interest would be charged on the money availed towards the overdraft. Therefore, it would not pose any problems. Since the banks would have all particulars with them about the loanees, the customers should submit the track record of payment of the EMIs, income particulars and other required documents. The quantum of the top-up loans would be decided by the quantum of the housing loan, income of the applicant, value of the mortgaged property in the market and on other factors, the experts say.
