When a person gets a Home loan, the amount they borrow is based on how much it is expected to cost them to build their home. However, if the overall costs of the building project are higher than the budget that was estimated, the project can be cancelled.
In this kind of scenario, people have the choice between getting a personal loan or a home loan top-up in order to raise the unanticipated amount of funds. First, let’s talk about what a home loan top-up facility is, and then we’ll talk about why it can be a better financial and logistical choice for you than the other alternative.
What exactly is a “top-up” for a home loan?
It is a type of credit facility that enables you to borrow an additional amount on top of the one you already have for your loan. This type of financing choice is often made available by financial institutions to borrowers who have been making timely payments on their loans over a period of at least a year.
The financial organisation will add the amount that you borrow through this choice to the total amount that you still owe on your home loan. As a direct consequence of this, the total amount that you will pay over the course of the remaining term will be higher.
Why Getting a Top-Up on Your Home Loan Is a More Convenient Option Than Getting a Personal Loan
The following is a list of the ways in which a top-up loan for your home loan might benefit you:
#1. Criteria for Acceptance of Debt
When compared to a home loan top-up, the qualifying requirements for a personal loan are frequently more stringent.Personal loans require no collateral, so the financial institution making the loan must be certain that the individual applying for it is a reliable borrower who will not default on the payments. Because of this, having a CIBIL score of at least 750 is required in order to qualify for a personal loan.
When you apply for a top-up loan on your existing home loan, however, the bank does not check your CIBIL score like they do with other loans. It only verifies that you have paid all of your past obligations on time to assure you that you will not miss any of your next instalment payments either.
#2. Tax Benefit
If you use a home loan top-up, you might be able to get tax breaks that are related to how much you borrow. Under Section 24B of the IT (Income Tax) Act of India, you can reduce your taxable income by up to Rs. 2 lakhs on the total home loan interest amount you have paid in a financial year. Further, Section 80C allows you to get tax deductions of up to Rs. 1.5 lakh on the principal portion of your instalments in a financial year. But you can’t get a tax break on a personal loan, even if you put the money you borrow into building a house.
#3. The rate of interest
A personal loan usually has a higher interest rate because it is a form of credit that doesn’t have to be paid back.Because of this, you will have to pay a big chunk of the interest cost.
On the other hand, if you take advantage of the top-up credit option, you won’t be subject to the higher interest rate that you were paying on your original home loan. Taking advantage of the home loan top-up in this manner will allow you to make considerable savings in the amount of interest paid. As a direct result of this, both the total cost of your loan and the amount of your EMI will drop by a significant amount.
#4. Time is needed for processing.
The time it takes to process a personal loan is much longer than the time it takes to process a home loan top-up.When you apply for a personal loan, the financial institution you plan to borrow from will make sure that you satisfy their eligibility requirements, that you understand your credit history, and that your papers are verified. All of these things might take a significant amount of time.
On the other hand, lenders do not have to go through all of these formalities in the case of a home loan top-up, and as a result, you receive the credit amount much more quickly. Because they already have all of your information, including documents, this is the reason. Most lenders give out the credit amount within a few hours of getting a loan application.
When you take out a personal loan, the repayment period typically ranges from one to five years. You will have to pay a greater total amount due to the condensed length of the payback period. When you combine the monthly payments for your personal loan and your home, you might find yourself in a difficult financial scenario. You can avoid this problem, though, if you get an additional line of credit in addition to your home loan.
The additional credit comes with the same duration as your home loan, which means that you will often receive an extended payback period of somewhere between 20 and 30 years. For the remainder of the term of your home loan, for instance, if it is 15 years, you will be given the same amount of time to repay any newly obtained credit. You won’t have any trouble making payments on the new loan because the repayment period has been extended.
How to Apply for a Home Loan Top-Up
You need to follow the below-mentioned steps to apply for this credit facility:
- Go to the official website of the financial institution that you favour the most.
- Find the application form for a home loan top-up and fill it in with the appropriate details.
- After that, someone from your lending institution will get in touch with you to tell you what steps you need to take to get the money.
To conclude, a home loan top-up helps in raising finance without much hassle. Since the lender already has your verified details and documents, they can sanction the credit amount faster. You do not even have to mortgage a different property for this facility. You get the top-up credit based on your collateral mortgaged while taking the existing home loan.