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What is Top-up Loan? Should You Avail One?

Updated on: 14 Dec 2021 // 42 min read // Home Loans
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In the event of financial requirements, it is common for one to opt for loans. In case you are one of those already servicing or repaying your home loan EMIs, your best bet is often to opt for the top-up loan option, which is available over and above one's existing home loan. Though you can avail a different credit option like a personal loan, gold loan etc., they are generally available at a higher interest rate than top-up home loans. Thus, as top-up home loans come with no documented requirement and are available at a lower interest rate than other credit options, opting for them in case of financial emergencies are much better for existing home loan borrowers. 

HDFC top-up loan, SBI home loan top up and other banks and HFCs provide top-up loans even when you opt for the home loan balance transfer option. Also, note that the features of top-up loans of home loans are similar to personal loans or loans against credit cards wherein the loan borrower is allowed to use their fund proceeds for meeting any purpose, may it be for funding their child's higher education, home renovation cost, travel abroad expenses etc. Thus, one can use top-up loans for meeting various purposes and at the same time enjoy their cost-effective rate of interest. 

What is Top Up Loan?

Top-up home loans are an additional loan, which is taken over and above the outstanding home loan amount for mitigating big-ticket lifestyle expenses such as car buying, home renovation, medical exigencies, personal travel, child's higher education or wedding etc. 

The loan amount sanctioned on top-up loans generally depends upon the difference between the originally disbursed home loan amount & the outstanding loan amount. The lenders can allow a home loan amount of around Rs 50 lakh or more. On the contrary, in the situation of their alternatives, the personal loan's amount can go up to Rs 40 lakh basis on the applicant's capacity to repay. For loans against credit cards, their loan amount is generally a proportion of the card holder's free credit limit. Note that there are few credit card issuers who might permit credit card loans over and above the credit card user's credit card limit. Thus, in the event of the top-up loans, the possibility of getting higher loan amounts is way higher. 

Benefits of Top Up Loan

The existing home loan borrowers might require incurring big-ticket lifestyle expenses related to home renovation or improvement, car purchase, personal travel, medical emergencies, child's higher education or wedding etc. The ones witnessing monetary mismatches or shortfalls to mitigate such expenses can look for taking up top-up loans on their home loans from their existing lenders of home loan.

Here, we will in detail discuss some of the top advantages of opting for top-up home loans for the existing home loan borrowers: 

Fund proceeds that are available come with zero restriction on their end usage.

Though top-up loans can only be taken up by the existing borrowers of home loans, they do not have any restriction on the end-use of the funds. However, their funds cannot be used for meeting speculative purposes. The absence of end-use restriction on their loan proceeds makes top-up loans an alternative to personal loans or loans against credit cards for the existing borrowers of home loans. Proceeds available from top-up loans can be used for purchasing a car, funding a child's higher education or marriage etc. 

Available at a lower rate of interest

Interest rates on personal loans can range anywhere from 9% to 24% p.a. based on the applicants' credit profiles. Loan against credit card's rates is usually a notch higher as compared to personal loan's rates available to the applicants from the same bank or NBFC. However, the top-up home loan's rates are usually the same or maybe slightly higher as compared to the existing rates of the underlying home loans. It makes top-up loans one of the cheapest loan options for the existing home loan borrowers who are availing of home loans at a lower rate of interest.

Higher repayment loan tenure

The repayment tenures of the top-up home loans primarily are based on the remaining tenure of the underlying home loan. For example, for the existing home loan borrowers with remaining home loan repayment tenure of 15 years, his top-up loan repayment tenure may be of up to 15 years. Loan repayment tenures for their alternative loan options such as personal loans and loans against credit cards are usually up to five years, with few of the lenders allowing to offer longer tenures on personal loans for up to 7 years. As higher loan repayment tenures result in reduced EMIs, selecting top loans might help in lowering the EMI burden. 

Higher loan amount

Loan amount on the occasion of a top-up home loan can go nearly up to Rs fifty lakh or even more. Note that for top-up home loans, the loan amount calculation is primarily based on the difference between the originally disbursed home loan amount and the outstanding loan amount. The loan amount in the situation of personal loan ranges anywhere between Rs 50,000 and Rs 40 lakh based on the applicant's income and his repayment capacity. In the case of loans against credit cards, loan amounts usually are the portion of the credit card user's free credit card limit. However, some of the credit card issuers can provide a loan against a credit card option over the card user's credit limit. Hence, the possibility of availing higher loan amount in the case of top-up loans are much higher, particularly for the ones who have repaid a considerable portion of their original home loan amount. 

Swift processing and documentation

Top-up home loan's processing time is generally longer as compared to personal loans and credit card loans. Loans against credit cards are generally sanctioned on the same day of submitting the loan application, while personal loans take time and are usually sanctioned within 2 to 7 days of a loan application. However, in the case of top-up home loans, a few of the lenders have begun offering such loans in pre-approved versions to the existing home loan borrowers. Top-up loans nowadays may get disbursed on the same day of the loan application. Availability of instant top-up home loans competes against personal loan options and loans against credit cards in terms of instant disbursal. 

Features of Top Up Loan

High loan amount

Top-up home loan's loan amount usually goes up to Rs 50 lakh or even higher. Remember that for top-up home loans, their loan amount calculation is done based on the difference between the original home loan amount, which is sanctioned and the outstanding home loan amount.

Longer repayment tenure

A top-up home loan's repayment tenure basically depends upon the residual tenure of the underlying home loan. For instance, for existing borrowers of home loans with a residual home loan tenure of 15 years, his top-up repayment tenure would be up to 15 years. 

Lower rate of interest

Top-up home loan's interest rates are generally the same or might be a little higher than the existing home loan's interest rate. This makes top-up loans one of the cheapest credit options for the existing home loan borrowers servicing their home loans at a lower rate of interest.

Has no restriction on funds end usage

Similar to a personal loan or loan against a credit card's loan proceeds, the loan proceeds of top-up home loans come with no restriction on their funds end usage. One can use the loan proceeds for any purpose such as home furnishing, meeting medical expenses, funding a child's education or marriage expenses etc. However, one cannot use the loan proceeds for any speculative reason.

Swift processing

While the regular top-up home loan may take up to a week to get disbursed, their instant version offered by some lenders makes the top-up home loans available to the existing home loan borrowers on the same day of submission of a loan application. Note that the availability of top-up home loans competes well against credit card loans and personal loan credit options in reference to instant disbursals. 

Best Top Up Loan Interest Rates 2021

Top-up home loan interest rates
Name of lenderInterest rate (%)Loan amount (Rs)Loan repayment tenure
State Bank of India7.50 - 9.80No limitUp to 30 years
Punjab & Sind Bank8.10 - 8.65Up to 25 lakh Up to 10 years
Bank of BarodaApplicable ROI on linked home loan + Strategic Premium + 0.601 lakh – 2 croreDepends on the applicant's age criteria
Canara Bank7.45 - 9.50Up to 25 lakhUp to 10 years
HDFC LtdFor existing customers: 7.60 – 8.80; For new customers: As per home loan slabUp to 50 lakhUp to 15 years
Bank of IndiaApplicable interest rates linked home loan + 0.502 lakh onwards*Up to 12 years
UCO Bank8.701 lakh – 25 lakhThe personal loan is to be repaid before the borrower attains the age of 75 years.
Axis Bank8.65 onwardsUp to 50 lakhSame as the residual tenure of existing home loan
Bank of Maharashtra7.40 – 8.65Up to overall LTV ratio of 75%Up to 15 years
Indian Bank8.60 – 9.251 lakh-60 lakhsUp to 10 years
* Total loan amount including outstanding loan amount of existing home loan should not exceed 75% of distress value of property 
Data as of 27th July 2021

Eligibility Criteria

Existing home loan borrowers can take up top-up home loans basis the listed conditions: 

* Top up loans can just be extended against a complete property with zero post disbursal documentation requirement.

* For the existing borrowers, a clear repayment track record of home loan's EMI is crucial. Even one bounced EMI can hamper the borrower's approval chances for availing of top-up home loans.

* An existing home loan borrower becomes eligible for the top-up option post 6 months' clear repayment.

* For a top-up home loan with the takeover of the home loan from another lender, a 1-year clear repayment history will be needed. 

Documents Required

Usually, in the case of pre-approved top-up home loan offer to the existing home loan borrowers, there is no requirement of any documentation as lenders offer the pre-approved option to select borrowers with a good credit profile and excellent repayment record. However, in the case of regular top-up loans, few documents may be required. 

An updated bank account statement showing your existing home loan EMIs is a vital document needed for a top-up loan. Before you submit an application, ensure to avail relevant information regarding the documents needed as different lenders have different document requirements. Doing so can help you fasten up your approval process. 

How to Apply for Top Up Loan in India

There are majorly 2 ways to apply for top home loans. Firstly, you can directly approach your existing home loan lender to avail of the loan by visiting the bank or HFC branch. Secondly, you can visit the lender's website and apply for a top-up loan online, wherein you require submitting your contact details, and the respective lender will contact you.

FAQ

✅What is the benefit of top-up loan? 

One of the main benefits of top-up loans is that they are available at a lower interest rate than their alternatives, such as personal loans and loans against credit cards. Additionally, the loan repayment tenure offered by top-up home loans are even much higher and are based on the residual tenure of the underlying home loans. However, in the case of their alternative credit option, personal loans allow a loan tenure of up to 7 years and loans against credit cards permit a loan repayment tenure of up to 5 years. 

✅How much top-up loan can I get? 

The loan amount for a top-up home loan can go up to Rs 50 lakh or more. Note that in the case of top-up loans, their calculation for a loan amount is on the basis of the difference between the originally disbursed or sanctioned home loan amount and the outstanding home loan amount.

✅Is a top-up loan a good idea? 

Yes, for the existing home loan borrowers, opting for a top-up home loan is the best decision they can make in the event of financial shortages or emergencies. It is because top-up home loan's interest rates are lower as compared to their alternatives like personal loans and loans against credit cards. Also, the top-up loan option's repayment tenure is higher than personal loan and credit card loans. Furthermore, the chances of availing of the higher loan amount are more in the case of top-up home loans than unsecured loan alternatives. 

What is the interest rate for a top-up loan in Axis Bank? 

The top-up home loan rate offered by Axis Bank begins from 8.65% p.a onwards.

What is the rate of interest for a top-up loan in SBI? 

SBI's top-up home loans interest rate at present ranges between 7.50% p.a. and 9.80 % p.a.