Pros and Cons of a Home Loan Top Up

15 Dec 2020 // 29 min read // Home Loans
Author :(560 posts)

Home Loans are long term commitments, generally spanning for a period of 10 to 20 years. While it may take more than a decade to pay entirely for your residential purchase, home related expenses are not limited to monthly loan instalments.

Buying a house is a herculean task. It involves a lot of planning, fund management, home loan execution and managing all adhoc costs that come along. In most cases, it is imperative to spend on renovations and home improvement to maintain the value of the property.

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However with the limited budget, low salary appraisals and regular EMI to pay, one may face cash crunch for home repairs and renovations. However, by resorting to Top-Up loans on Home Loan you can comfortably meet these expenses without pinching your pocket.

Let’s have a quick sneak peek at what are Top-Up Home Loans and are they recommended for meeting the cash lapses.

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A Top-Up Loan is an additional loan taken over and above your Home Loan for additional expenses. It is availed from the existing Home Loan lender as it is offered as an additional loan on your house. Generally, banks would give a maximum of 60-70% of the current market value of the property as a Home Loan Top-Up.

Besides, this loan is only extended as a goodwill credit to customers having a good credit history and relationship with the bank. You can avail a Top Up only after two successful years of your current Home Loan. You must have a clear repayment history with no defaults on your report.

Whether you have an SBI Home Loan or an Axis Bank Home Loan or with any other mainstream bank or NBFC, you will conveniently find a Top Up offer with your lender.

Pros & Cons of a Home Loan Top Up


  • Minimum Documentation & fast processing:

    Since the Top Up loan is extended by your existing Home Loan lender, they already have all your account credentials. They know your repayment schedule. Hence a Top-Up Loan doesn’t require a lot of documentation and is also processed much faster than a normal Home Loan or Personal Loan.

  • Reliable financial backup:

    Top-up loan comes in handy for extra financial support in times of need; especially when the existing Home Loan is not sufficient.

  • No restriction on loan purpose:

    Top Up Loan taken on your Home loan can be utilized to cater to any of your expenses; be it home renovation, home extension, buying furniture or to fulfill personal expenses. You don’t need to provide any proof of expense to the bank for the loan usage.

  • Low Rate of Interest:

    This is one of the major reasons why people opt for Top-Up Home Loans. A Home Loan Top-Up would generally cost you the same rate as of your Home Loan. If you opt for a regular Personal Loan it may cost you anywhere from 11-24% p.a. Money saved is money earned; hence you save a lot from the interest component of a Top-Up Loan.

  • Tax Benefits:

    A Top-Up Loan gives extra tax benefits under section 80C and Section 24 of the Income Tax Act, provided you utilize this money for home reconstruction or renovation. Hence you save further on taxes.


  • Only for existing customers:

    This is a major flaw or drawback. A Home Loan Top-Up can only be availed by existing Home Loan customers and is not available for every applicant. Moreover, if a person has a bad credit history or has had some defaulted payments, he can’t avail the Top-up loan at all.

  • Increase in EMI:

    While we look at the brighter side that our current financial crisis has been met because of the Top-Up loan, we tend to ignore a fact that our future liability of EMI is increasing in the bargain. Your income is same; and yet, you have added another portion of amount in your repayment lists.

  • Fixed limit:

    Some banks have a capping on the amount of Top-Up Loan, beyond which you will not be eligible for credit. Hence, limited eligibility can be a major issue for some.

  • Applicable from existing bank only:

    Since you have to take up the Top-up loan from the same bank that has given you the Home loan, this leaves no room for comparison and availing the best benefits. You will have to avail the Top-Up Loan from the same lender irrespective of your relationship with the bank.

While a Home Loan Top-Up provides us with great financial stability when needed, we also need to look at all the positive & negative aspects of having it along with the existing Home Loan. You need to begin a deep dive analysis and understand if it would be beneficial to you in the long run or will just be a makeshift solution to your current situation.

Also Read: Why Should You Avail a Home Loan Top Up to Fund Your Basic Needs

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