What is Top Up Loan on Home Loan?

Financial insecurity can be a backache when you want to live freely and fulfill all your dreams. When you plan to get loans to fulfill those dreams then lesser funds become a severe anxiety, but here is My Mudra to hold your back. Planning to get a loan can be a life-changing decision if you are aware of all the terms and conditions. If you are planning to renovate your house, fund your child’s education, or cover any expenses, there is one solution to every problem that is top-up loans.

Top-Up loan allows you to borrow more funds on your existing home loan. It is a financial tool that allows flexibility and ease to all the borrowers, who want to have their dream house. My Mudra provides you with a top-up loan with easy processes. Get your application done online, get your documents verified, and enjoy your quick disbursal of loans. My Mudra will handle your financial burden with the smooth processing of top-up loans and you can enjoy your life without the worry of lack of finances.

What is a Top-Up Loan?

Before we go through the importance of a top-up loan, let's first understand what a top-up loan is. Top Up loan is an additional loan that you can avail on your existing home loan. If you are paying your home loan regularly and built some equity in your property, you might be eligible for a home top-up loan.

This loan works similarly to your base home loan but is quite easy to get as it is backed by the same property. It is quite easy process as the borrower does not have to go through the whole process of applying for a loan again. The interest rates on top-up loans are quite low which makes it a cost-effective way to get extra funds on your home loans.

Example of Top-Up Loan

80 lakh rupees for 10 years has been accepted by the bank. Your loan's remaining principal balance is 45 Lakh rupees after 5 years. Now it's time, you can think about getting a top-up loan if you want to renovate your house. The top-up loan would be an additional loan on your existing home loan.

Top-Up Loan Eligibility

The eligibility criteria for the top-up loan is a very simple process as compared to other loans. Though top-up loan is granted to anyone who has a home loan. The bank has a certain set of rules if anyone wants to acquire a top-up loan. Guidelines are mentioned below that show the eligibility criteria for top-up loans.

1. No Defaults

A borrower should not have defaulted on any payments. Repayment on time shows that the borrower has a financial discipline. If he/she pays the repayments the loan amount in time, is an indicator that they will get a top-up loan easier.

2. Good CIBIL Score 

People with good credit scores have higher chances of getting top-up loans. The good cibil of the borrower shows he is making repayments on time. Boost your credit score to get instant approval on top-up loans on home loans.

3. Repayment History

The bank checks the older records of the applicants in order to check the repayment history before approving for a top-up loan.

Top-Up Loan Interest Rate 

Here are a few of the top-up interest rates of the banks.

Tenure of Top-Up Loan 

The tenure of the top-up loan depends on bank to bank. Top-up loans are provided for a period of 10 years or for the remaining time on the existing home loan.

Benefits of Top-Up Loan

Here are a few of the benefits of top-up loans showcasing how it is the best option to cover your expenses.

1. Financial Flexibility

One of the pros of a home top-up loan is the financial stability it offers. Whether you want to pay for your child’s education, renovate your home, or cover your medical expenses, a top-up loan gives you the freedom to use the funds as and when you need the funds.

2. Low Interest Rates

The top-up Interest rate is lower than the interest rates on other types of loans such as business loans or personal loans. This can be a good option if you want to save funds over time.

3. No Additional Collateral Required

Since the top-up on your home loan is secured by the same property as your home loan. Then there is no requirement for the additional asset as collateral.

4. Tax Benefits

Based on the use of the funds, you might be eligible for tax deductions. For example, if you use the loan amount for the home renovation then you can claim tax benefits under section 24 of the Income Tax Act in some countries.

5. Long Repayment Tenure

Not like the personal loan which usually have a short period for loan repayment. On the other hand, top-up home loans have a longer period for loan repayment which makes the funds manageable for the borrower. Home top-up loans are flexible and allow borrowers to be at ease while paying their monthly payments.

How to Apply for a Top-Up Loan?

Applying for a top-up on your home loan is a simple process but it requires a step to follow. Here are a few steps through which you can avail yourself a home top-up loan.

1. Check your eligibility

The first step is to check your eligibility for a home top-up loan. Lenders require a good and stable repayment history. You also have to pay a certain portion of your home loan before you apply for a top-up loan.

2. Application Process

Once you meet the eligibility criteria, you can proceed further to apply for a loan. This comes with an application form along with documents like your identity proof, address proof, and bank statements.

3. Assessment by Lender

The lender will assess your application with the document that has been provided. The loan amount that you can avail will depend on the remaining balance of your home loan and the value of the property.

4. Disbursal of the Loan

Once the application is approved by the lender then the loan amount is disbursed in the account. The funds can be used later when they are required.

How to maximize the benefit of Top Up Loan

1. Use the loan wisely

As the top-up interest rate is lower than other types of loans, it might be quite easy to use the funds for unnecessary expenses. It is very important to use the loan for the purpose that is really required and add value for the long term.

2. Plan Repayments

Before you apply for a top-up loan, you should plan your repayments. This will help you to comfortably manage the EMIs along with your other expenses.

3. Keep track of Interest Rates

If there is a drop in interest rate after you take out the loan, refinance your loan to take advantage of lower interest rates. This can reduce your monthly payment and save you money over the life of the loan.

4. Review the terms and conditions

Review the terms and conditions of your top-up loan regularly and compare it with other banks that are providing the same thing in the market. If you find your requirements getting met by another lender then switch your loan application to them.

Conclusion

A top-up loan is a powerful financial instrument that can help manage large expenses without taking the high-interest credit option. Whether you are looking to renovate your home or need funds for significant life events, a home top-up loan offers flexibility and potential savings. However, it is very important to understand the meaning of a top-up loan, the top-up interest rate, and how it fits with your financial needs.

By carefully considering the options, comparing offers, and planning for repayment, you can make the most of a top-up loan and achieve your financial goals without any stress. While applying for the loan you should be well equipped with the terms and conditions. This will allow you to make informed decisions and save you from misfortunes.

Also read: Do's and Don'ts of Applying for a Personal Loan Online in 2024