Home Loan Balance Transfer or Top Up: Deciding the Right Move

With Union Government’s push for affordable housing, RBIs reduction in repo rate, and intense competition in the market, Home Loans have become more affordable and accessible for prospective borrowers. Low-interest rates, income tax benefits, extended repayment tenor, and low processing charges are some of the benefits you enjoy with a housing loan.

However, the fact of the matter remains that a Home Loan is a significant financial commitment which you have to serve for most of your working life. Often, you cannot enjoy true freedom in deciding the usage of your monthly income.

As most of your income goes towards Home Loan EMI, you are unable to save adequate sums of money for unexpected expenses. During times of financial crisis, you might find it difficult to arrange for bank credit along with a running loan.

Many borrowers fail to realise the inherent benefits of Home Loans. You can use your home, which is mortgaged with a lending institution, to reduce your financial burden. You enjoy two incredible facilities with your Home Loan, such as Home Loan Balance Transfer and Home Loan Top-Up. Let’s review each.

Home Loan Balance Transfer (HLBT)

A Home Loan balance transfer is a credit facility wherein you transfer your existing Home Loan balance to a new lender. The reason behind this decision usually is based on better loan terms available with another lender such as lower interest rates, extended repayment tenor, low processing charges, etc. Herein, your existing Home Loan account with your present lender will be settled by the new lender and the new lender will open a new Home Loan account for you. This option comes useful during times of crisis as it can help lower your EMI or reduce the total interest cost you have to bear. Different lenders offer different types of Home Loans, and a carefully carried out comparison can help you avail of a more affordable offer on BT.

Home Loan Top Up

Home Loan Top Up is a credit facility offered to existing Home Loan account holders by the respective financial institution. Herein, the borrower is provided the option to avail additional money, over and above the Home Loan amount, in place of the property mortgaged against the Home Loan. The lender extends the mortgage against the property and offers an additional loan in the form of Home Loan Top-Up. The maximum amount available varies across different types of Home Loan as well as discretion of lenders.

Home Loan Balance Transfer vs. Home Loan Top Up: Making the decision

 Now, before you jump to some conclusions regarding the suitability of these credit facilities according to your requirement, here is a comparative analysis to help you make a decision:

• Suitability: While both these options will come in handy during times of financial problems, their suitability varies greatly. When you avail a Home Loan Balance Transfer, you enjoy the benefits of lower interest rate and lower EMI amount, reducing your financial burden. But when you opt for a Home Loan Top Up, you get additional funds in your account, which you can use as per your discretion. It offers you more flexibility in terms of managing the financial problems you are facing but in turn, increases your monthly EMIs and interest outflows.
• Availability: The option of a Home Loan Balance Transfer is available to you after one year of the disbursal of the Home Loan. Whereas, you can avail a Home Loan Top Up only after a few years of servicing the loan. You are offered a Home Loan Top Up by the lender according to the amount you have repaid. Though both these facilities are available only if you have been repaying your EMIs regularly.
• Amount Available: Under the facility of balance transfer, you will not be getting any amount in your account. The new lender will pay money directly to the existing lender and will open a new loan account for you. While in case of a Home Loan Top Up, you get additional funds in the account which you are free to use. For instance, in the case of ICICI Bank Home Loan, you can avail of a Top-Up loan of up to Rs. 25 Lakh for any financial requirement of yours.
• Choice of lender: As the name suggests, a Home Loan Balance Transfer is available only when you transfer your Home Loan account to a new financial institution. There is no other option to avail of this facility. While, to avail the facility of a Home Loan Top Up, you have the choice of applying with your existing Home Loan lender or with a new lender who offers you the facility of Home Loan Balance Transfer along with a Top Up.
• EMI: With Balance Transfer, your monthly instalments will reduce considerably as the new lender will offer you a lower rate than the one you were serving. But in case of a Home Loan top-up, your EMIs are bound to increase because this facility is over and above your existing Home Loan. Lenders offer to top up on the same rate of interest as you are serving on your running loan. You will have to serve separate EMIs for your Home Loan as well as Home Loan Top-Up.

Therefore, it is advisable to use an online calculator such as the SBI Home Loan Calculator to assess your EMI commitments before you sign-up for a Home Loan Top Up.

So, the suitability of either of these options depends on your financial requirements. If you are looking to reduce your EMIs, and do not need any additional funds, apply for a Home Loan balance transfer. However, if you need some additional cash in your hand, a top Up is the product to vouch for.

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