When a person buys any home, it generally involves taking a home loan & also exhausting a substantial amount of one’s savings, to fund the margin money. Moreover, homebuyers also try to avail of the maximum possible loan money, to get the best home. Sometimes, a situation may rise, where you need substantial money, while you are also servicing an existing house loan. There is a choice called a ‘top-up home loan,’ to deal with such situations.
An add-on loan is an additional amount that one gets as a loan, over and above your existing home loan. Various lenders have a minimum qualifying period for which the original home loan should have run before you become eligible for the top-up credit. The period generally varies from six months to one year. Lenders also usually force that the home for which the loan was taken, be paid.
For availing the add-on home loan, you need to have a good repayment record on the existing house loan. Otherwise, the lender will not give any further funds, when the existing loan is already going on.
If your prevailing bank is not willing to give you an add-on loan, you can always approach another lender, to transfer your credit along with an add-on loan. In the case like this, you will need to follow with all the documentation & KYC formalities, with the new bank.
Your income may have increased after your original home loan was paid. Similarly, the assessment of the property may also have appreciated. Both of these factors add to your overall loan eligibility. The max amount of add-on loan that you can get will differ, depending on the bank. Some banks cap the aggregate of the proposed add-on loan & balance outstanding on your house loan, to the original value that was sanctioned for the house loan, subject to the margin obligation and your income level. Other banks may calculate your overall loan eligibility, after taking into account your existing income & a margin of around 25%, on the current market value of the home.
The tenure of the top-up loan, also varies from lender to lender. The maximum top-up loan tenure is generally restricted to 15 years. Some lenders may also restrict the tenure, to the remaining period of the home loan, to ensure that the repayment of the home loan as well as the top-up loan, is completed at the same time. The maximum tenure of your top-up loan, is also limited by the residual life of the house.
The add-on credit can be used for any individual need, like marriage or education of children, purchase and holidays. However, the add-on loan can’t be used for any speculative activity, like trading in shares, etc. The bank may insist on obtaining an undertaking from you, about the proposed use of the loan.
As the top-up credit is given on the security of the house, the rates of interest are lower than that on a simple personal loan. Likewise, the rate of interest on a gold loan is also higher than a top-up home loan. Moreover, the tenure of a gold loan or a personal loan is generally lower than what is available on a top-up home loan.
See Also: Tax Benefits on House Rent