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Home Loan
Need additional cash? Here's how a Home Loan top up works
Find out how home loan top-ups offer significantly lower interest rates than personal loans while providing flexible repayment options for your major expenses.
- Home loan top-ups typically offer lower interest rates than personal loans and credit cards, potentially saving lakhs in interest payments for major expenses.
- Top-up loans are best used for value-adding expenses like home renovations, education, medical emergencies, or debt consolidation—not luxury items—and offer repayment flexibility through either extended tenure or increased EMIs.
Are you in need of more money, but wish to steer clear from paying the high interest rates on personal loans? A top-up loan could be the answer for you if you currently have a home loan. Using your house as collateral, a home loan top-up permits you to borrow more money, typically at a relatively cheaper interest rate than conventional loans.
However, many homeowners don't know about this alternative or how it works. Hence, comprehending home loan top-ups can help you manage big expenses like home renovations, children's education, or medical bills without breaking the bank.
So, let's break down how top-up loans work. Let us also scrutinise if they are right for you.
What is a home loan top-up?
A home loan top-up is extra money you borrow from your existing home loan lender. It is like adding more money to your current home loan.
Think of it this way: You took a home loan of ₹50 lakhs five years ago. You have paid back ₹10 lakhs so far. Now you need ₹15 lakhs for your child's education. Instead of taking a new loan, you can get a top-up on your home loan.
The key advantages are:
- Lower interest rates compared to personal loans
- Longer repayment horizon
- No need for new paperwork or property checks
Home Loan Top-up: Benefit of lower interest rate
Anita needed ₹10 lakhs for her daughter's wedding. Her selections were:
- Personal loan at 14%: EMI ₹23,228 for 5 years, resulting in total interest of ₹3.94 lakhs
- Home loan top-up at 10%: EMI ₹21,247 for 5 years, resulting in total interest of ₹2.75 lakhs
Therefore, by opting for a top-up, she saved ₹1.19 lakhs in interest!
Who can opt for a Home Loan Top-Up?
Not everyone with a Home Loan can get a top-up. Lenders have detailed requirements:
| Eligibility factor | Common requirements |
|---|---|
| Payment history | Regular EMI payments for at least 1-2 years |
| Loan repaid | Usually, 15-20% of the original loan amount |
| Credit score | CIBIL score above 750 |
| Income stability | Steady income source |
| Property value | Higher property value helps obtain larger top-ups. |
For illustration purpose only. Actual criteria may vary from bank to bank.
Repayment options
When you get a top-up loan, you have two chief repayment alternatives:
- Extended tenure: Your EMI stays the same, but your loan period gets extended.
- Increased EMI: Your loan period stays the same, but your monthly payment is increased.
Extended tenure vs Increased EMI
Vikram had 15 years left on his home loan with an EMI of ₹45,000. When he took a ₹20 lakh top-up, he chose:
- Option 1:. Keep EMI at ₹45,000 but extend tenure to 22 years
- Option 2: Keep 15-year tenure but increase EMI to ₹63,500
He chose Option 1 since it fit his monthly budget better, even though he'll pay more interest in the long run.
Common uses for home loan top-ups
Top-up loans are best used for important expenses, not luxury items. So, it can be used for things like:
- Home renovation or repair: This adds value to your property and may qualify for tax benefits.
- Children's education: Education is an investment that brings returns through higher earning potential.
- Medical emergencies: Health comes first, and top-up loans offer lower rates than personal loans or credit cards.
- Debt consolidation: If you have multiple high-interest loans or credit card debt, a top-up can help you consolidate them at a lower rate.
Conclusion
Home loan top-ups are a smart way to access large sums at lower interest rates than most other loans. They work best for important expenses that add value to your life or property.
However, remember that you are putting your home at risk for additional debt. So, before taking a top-up, make sure the expense is necessary and that you can comfortably handle the increased EMI or extended tenure. Also, with careful planning, a home loan top-up could be a valuable financial tool that helps you meet your needs without breaking your budget.
Disclaimer: This article is intended solely for informational purposes. The views expressed in this article are personal. Axis Bank and/or the author shall not be liable for any direct or indirect loss or liability incurred by the reader arising from reliance on the content herein. Readers are advised to consult a qualified financial advisor before making any financial decisions. Axis Bank does not endorse or guarantee the accuracy of any third-party content or links included in this article.
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