How can you benefit from a top up loan?

A top-up loan basically allows you to avail a loan amount on the value of the property of the home you are paying a home loan for. You can avail a maximum top-up loan of about 60% of the property’s market value. The usual loan tenure is about 10 years and is offered only a few years into the home loan disbursal, as this gives a fair idea about your repayment track record and also increases your loan eligibility.

Vineet Sharma bought a cozy apartment seven years back, for his small nest of three people including his wife and his child, the then 3 year old Manu. He had a roaring business at that time and he never ran out of outsourced IT projects from UK and the US mostly. Then, the impossible happened. Global markets crashed and his business went into a slump. Being the individual who is quick to rebound, he came with a smart business plan to pull himself out of the lurch.

However, he needed a quick source of funding for this. Meanwhile Vineet’s cozy property increased four times its original value due to the rapid development in the past seven years in his area, with a multiplex, a mall and skyscraper office spaces were all around him. Eventually it struck him that the money he needed was well within his reach. Yes, you see the connection, we are talking about a top up loan here. Top up loans are a boon to people who are in urgent need of funds. You can approach the same bank with which you took the home loan or shift the home loan to the bank, which is willing to give you a good deal on the top-up loan.

A top-up loan basically allows you to avail a loan amount on the value of the property of the home you are paying a home loan for. You can avail a maximum top-up loan of about 70% of the property’s market value. The usual loan tenure is about 10 years and is offered only a few years into the home loan disbursal, as this gives a fair idea about your repayment track record and also increases your loan eligibility.

In Vineet’s case, he is eligible for a loan amount of 60% of the current value of his property – the outstanding loan amount he owes the bank. Thus accumulating fixed assets that have high appreciation value can come in pretty hand.

How is it useful?

Top up loans are a boon to people who are in urgent need of funds. It is almost like a personal loan, except that it comes with better interest rates though not as good as home loan rates but are based on the prevailing rack rates. You can utilize this loan for any purpose. A top loan on your existing home loan is an ideal choice to pay for your parking space or to fund your son’s higher education for instance.

What are the eligibility criteria?

a. You can take a top up only when you have a home loan to top up on.

b. The conditions for top up loans vary from bank to bank. You can approach the same bank in which you took your home loan but if your bank does not offer you the option, as some reserve the right to provide a top up, then you could shift the home loan to a bank that is willing to give you a good deal on the top up loan.

c. Keep in mind that you need to have an impeccable repayment track record.

d. The outstanding loan amount pending with the bank, the market value of the property and your ability to repay a top up, are all taken into account to figure out how much top up the bank gives you. In fact the upper limit on the loan amount is defined based on these three aspects.  It is always ensured that the outstanding loan amount you owe the bank plus the top up loan does not increase beyond around 70% of the market value of the property. Also, each bank will have its own upper limit and the loan amount will be restricted accordingly.