The home loan is a long term commitment that involves a fairly large amount of money. At times people who take a home loan may find the amount insufficient to complete the acquisition or construction of the house at a later stage. It is then that the top u0p home loan comes handy. This particular type of loan is an excellent instrument that is available for home loan customers to make good the deficiency so that the process of having your dream home ready carries on unhindered.
What is a Top up Home Loan?
This is a special facility that is available to the existing home loan borrowers who can avail it in addition to the approved home loan. There are no restrictions on the usage of this kind of a loan. Any personal purpose is sufficient reason for utilizing the money including funding child’s education, refurnishing the home or even buying household appliances. The banks have no say on the use of the money availed through a top up home loans.
Key Benefits of Availing the Top up Home Loan
There are some very compelling benefits which make the top up home loan a preferred tool by most of the home loan borrowers.
- Since there is no restrictions on the utilization of the money the borrower is at liberty to spend it any ways that he wants to make best of the situation.
- The tenure of a top up home loan normally corresponds to the original home loan which is fairly long enough to have an easy EMI that can be conveniently adjusted in the monthly budget.
- The typical interest rates for top up home loans range between 11 to 13 % making them extremely attractive as compared to the personal loans which normally have 16 to 24% interest rates.
- The borrower does not need to mortgage any other asset or provide gold, fixed deposits or insurance policies as security for availing this kind of a home loan.
- Pledging any other property or assets will fetch only 40 to 60 % of the value of the asset whereas the top up home loan can get you about 60% of the value of the property without any additional property having to be pledged. 60% of the value of the home is considered sufficient amount to meet requirements being sought to be looked after through the top up loan.
- There are tax benefits of the top up home loans too. The benefit is allowed only on interest portion as under Section 24. However in order to claim tax benefit on the principal, the purpose has to comply with the requirements of home loans. So if the top-up loan is used for repair/renovation/acquisition/construction of property and if proper documentation is present, the individual will be eligible for tax benefit on the principal too. These deductions are included in the original home loans deductions of the standard Rs.100000 for principal repayment and Rs.150000 for the interest payment.
Despite the several benefits of availing a top up loan the borrower must be cautious while taking it. It must be borne in mind that there is already the repayment burden of the home loan which has to be catered for. The EMI of the top up loan will be in addition to the existing home loan which might become difficult for the borrower to service simultaneously.