Assume all went according to plan and you were approved for a 40 lakh rupee home loan and bought a new house. Nevertheless, obtaining a home loan does not discharge all of your debts. You can still need money for other reasons. Let’s imagine that after a year or two, you find that you have other needs, such as the need for money to make repairs or improvements, and you consider taking out another loan to get more money.
But hold on! You might want to familiarise yourself with the idea of a top-up house loan before doing so.
Even while not all of your expenses are related to your property, that doesn’t mean you should ignore them or take out a new loan at a higher home loan interest rate. Instead of getting a completely different loan, it can be in your best interest to choose a top-up mortgage. You can learn everything you need to know about a top-up house loan from this post.
What is a home loan top-up?
Simply explained, a top-up loan is a money that is given on top of your existing loan. It would be referred to as a top-up house loan if the pre-existing loan was a home loan.
In addition to an existing home loan, lenders provide top-up loans with little additional paperwork. Similar to topping up your mobile balance when it runs low, they provide top-up loans over your current loan balance.
Salient features of a top-up home loan
Comparing a top-up home loan to a conventional mortgage, there are various advantages.
Top-up home loans have interest rates that are almost identical to those of the original home loan.
- In general, processing a top-up home loan involves minimal/no hidden fees or processing fees.
- There may be no penalty for early payment (a prepayment penalty is where lenders charge prepayment fees if you pay off all or part of your mortgage early to make up for the loss of interest they may have received in the future). The charge amount is also set by the lender, therefore this varies from lender to lender.
- Based on the amount of the daily installment that is paid, interest is calculated daily reducing the balance. If interest is computed daily, it will be calculated on the remaining loan balance, thus it goes without saying that it will decrease as the loan is paid off. As a result, both the interest and the outstanding principal amount decrease every day.
- It has a maximum 30-year repayment term. This timeframe for repayment, though, differs between lenders.
Benefits of a top-up home loan
Numerous advantages arise with a top-up mortgage. Let’s examine a few of them closely:
Eligibility criteria are straightforward
Your mortgage lender won’t need to reassess your creditworthiness because you already have a relationship with them. Instead, they will base their choice on how well you have repaid your loan. As a result, each EMI payment must be made on schedule.
More affordable than other financing options
Though top-up loan interest rates are normally slightly higher than standard home loan interest rates, they are lower when compared to other loans, such as personal loans or loans against property.
A reliable source of energy funds
Since a top-up loan doesn’t require a fresh loan application, it is perfect for emergencies. This quickens the distribution process, enabling you to take care of any pressing demands.
Simple to repay
A top-up loan’s longer-term allows you to create a flexible and practical repayment schedule. A top-up loan can be repaid over a period of 15-20 years or more, unlike a personal loan, which normally has a five-year term. The tenure will be determined by the length of your present mortgage.
How can you apply?
Each lender has a unique application procedure for top-up house loans. However, the typical application procedure is covered below:
- In order to apply for a top-up loan, you must fill out an application. Salary slips and the most recent bank statements must be submitted with the application form.
- You might need to provide a few extra documents for a top-up loan, depending on the lender’s criteria. Your eligibility is determined by your repayment history and credit scores. As soon as the lender has confirmed this information, the money is disbursed. Usually, the loan is disbursed within 48 to 60 hours.