Planning for renovation, it’s time to invest in top-up loan if you already have a home loan or personal loan.
Home loans are best way to make sure that you become the owner of your dream house. But what if you wish to renovate your house; suppose you had taken the home loan of Rs. 50 lakh for a tenure of 15 years and after paying your EMIs regularly your outstanding amount is 35 lakhs and you plan to renovate your house but due to lack of funds you are not able to do so. But, not to worry, banks and many financial institutions now have the provision of top-up home loan which will help you solve your problem of shortage of funds.
What is a top-up loan?
A top-up home loan allows you to avail loan on top of your home loan amount. Usually the tenure of the top up home loan is 10 years; you can get top-up home loan only after a few years of your home loan disbursal thus, you need to make sure that you are paying your EMIs regularly which is an indication of good credit rating, this also gives a good reflection of repayment track records and hence, increases your loan eligibility.
The Working of Top-up Loans
The logic behind top-up loan is that the financial institutions sanction the amount on top of your already approved home loan, this facility can be availed only after a certain year of home loan disbursal, however, few conditions apply for top-up loan approval :
- The borrower must have taken home loan from the bank where he/she wants the top up loan.
- One can get a top-up loan only after 6 months or 1 year or after certain years of repayment of the home loan. However, some banks also have the provision of completion of the house before approving the top-up loan.
- Financial institutions usually approve the top-up amount which is 70%-75% of the current value of the property minus the outstanding amount of your home loan. For example, if the market value of the property is 60 lac and 30 lac is the outstanding amount of your home loan then the top –up loan amount that the financial institution can approve is 15 lacs to 18 lacs.
- An important point to note here is that the tenure of the top loan cannot be more than the tenure of the outstanding home loan amount. For example, if the tenure for an outstanding home loan is 6years then banks will approve the top up loan for not more than 6 years.
- Usually, there are no extra security charges for a top-up loan.
The above-mentioned conditions may vary from bank to bank.
Similar to home loan, there is an interest rate at which banks approve the top-up loan , this varies in the range of 1%-2% more than the interest rate of home loan. Although top-up loans comes with extra interest rate yet they are less expensive when compared to the personal loan.
Here is an example to explain how the top up loan is calculated:
Let’s say, Vasu had taken home of Rs. 30lac at interest rate of 12% for a period of 20 years and he is in the third year of home loan.
Now let’s assume that the value of the property has escalated by 20 lac and now the value of the property is 50 lac.
70% of Rs. 50 Lac = Rs. 35lac
Now,the outstanding amount has to be deducted from the above amount.
Vasu had paid loan for 3 years then he woud hav paid 1.31 lac.
Now the remaining principal amount is 28.7L
Top Up loan = 70% of market Value- Principal yet to be paid
35 lac- 28.7 lac = 6.3 lac
Hence, maximum top-up loan Vasu can get is 6.3 lac.
List of banks and financial institutions and the interest rate charged by them on the top-up loan:
|Name of the Financial Institutions||Interest Rate for To-up Loan|
|CITI Bank||11.49%20% (Fixed)|
|Indian Overseas Bank||14% (Fixed)|
|Standard Chartered||11.99%-17% (Fixed)|
|Kotak Mahindra||11.49%-20.5% (Fixed)|
|Allahabad Bank||13.55% (Fixed)|
|Bank of Baroda||14% (Fixed)|
|Bank of Maharashtra||15.15%(Fixed)|
|Bank of India||12.60%-14.60% (Floating)|
|Canara Bank||13.65% (Floating)|
|Union Bank||14.4% (Floating)|
|Yes Bank||14% (Fixed)|
|Aditya Birla||14%-16.25% (Fixed)|
|Capital First||13%-20% (Fixed)|
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