5 Reasons to Choose a Top-Up Loan When Upgrading Your Home

As an existing home loan borrower, a top-up loan may be the ideal option for you when you are seeking to refurbish, remodel or renovate your home. Generally, your lender is open to the possibility of a top-up loan when you make EMI payments faithfully and your property has a significant market value.

Top-up loans function as an amount added to your existing home loan and offer significant benefits when compared to loans like personal loans or loans against securities. Here are 5 reasons why you should choose a top-up loan when upgrading your home.

Get a Loan Without an Additional Collateral

Since top-up loans work as additional funding over and above your existing home loan, your home remains as the security for the top-up. You do not need to search for another valuable asset such as gold or a mutual fund. One of the main reasons to choose a Top up Loan when upgrading your home is that you can pledge your home as collateral. All you need to ensure is that your existing home loan and your top-up loan added together remain within your lender’s loan-to-value limits.

Make Repayments over a Long Tenor

A top-up loan essentially works off your existing home loan tenor. This means that if you have 15 years remaining on your home loan term, your top-up loan can have a maximum tenor of 15 years. Few lenders offer tenors of up to 20 years. This is significantly more than that of a gold or a personal loan that offer tenors of approximately 3 and 5 years respectively.

Profit from Low Loan Interest Rates

Interest rates on top-up loans are only incrementally higher, generally 0.5-1%, than rates on a home loan. When compared to interest rates offered on personal loans or gold loans, top-up loans are the more economical option. Lower home loan rates mean that your loan costs you less each month. Similarly, lower EMIs mean that you can do more home renovation while spending less.

Obtain the Loan with Minimum Documentation

As you are already an existing borrower, your lender will probably not require you to submit many additional documents. In fact, lenders let you avail of a top-up loan without needing any extra supporting documents. This is possible because your lender has already conducted a background check on your personal and financial details at the time you applied for the home loan.

Avail of Tax Benefits While Upgrading Your Home

Top-up loans allow you to claim principal deductions via Section 80C interest and deductions through Section 24B. These deductions are based upon the end-use of the finances. For example, if you wish to extend your house by purchasing a new additional property then the funds will go towards purchase of new property and you will be able to claim both 80C and 24B benefits.

On the other hand, if you use the funds to make alterations to or does repair work on your property then you can claim Section 24B’s interest rebates. Here, they are capped to Rs.30,000 and not Rs.2 lakh. When you account for these tax deductions, top-up loans can become much more affordable than other borrowing options.

If your lender does not give you the option of taking a top-up loan, consider doing a home loan transfer and switching to Bajaj Finserv’s Home Loan. Here you can get your top-up loan quickly processed and obtain the additional financing you need at nominal home loan interest rates. It’s nil prepayment and foreclosure facility and 20-year-long tenors keep repayment easy on the pocket. You can use the home loan EMI calculator to determine the monthly cost of your loan and the online account management portal to keep track of the status of your loan.