The need for extra funds can arise at any time and for any reason, be it for clearing your debts, renovating your home, or paying for your kids’ education. Top-up loans are a boon to people who are in urgent need of funds. A top-up loan basically allows you to avail an additional loan amount on top of your existing loan, be it a Home Loan, a Car Loan or a Personal Loan. And you can utilise this loan for any purpose too.
For instance, let’s take the example of Kavya Sharma. She took a Home Loan from her friendly neighbourhood bank to buy a cosy little apartment in Bangalore. Two years later, Kavya and her husband decided to have a baby. But before that, they wanted to renovate their apartment. They figured that they needed to take a loan to cover the cost of renovation.
But getting another loan was a difficult financial decision for them. They were already servicing two loans – Kavya’s Home Loan, her husband’s Car Loan. And they had their individual Credit Cards too.
Additional Reading: Top Up Your Home Loan!
How can they go about this? Well, it is pretty simple. Kavya can apply for a top-up loan on her existing Home Loan.
Simple Top-Up Loan Breakup For Kavya’s Case
Let us assume Kavya had taken a loan of Rs. 30 lakhs at a 12% interest rate for a period of 20 years. And as specified earlier, she’s currently in the third year since she took the loan.
Now, coming to the property price, let us make another assumption that from the time she purchased the property, its value has risen by Rs. 20 lakhs. So, the current market value of the property is at Rs. 50 lakhs.
70% of Rs. 50 lakhs =Rs. 35 lakhs (70% of the value is taken as the margin beyond which the loan will not exceed)
Let us now deduct Kavya’s outstanding loan amount:
Since she is three years into the loan, she would have repaid a principal amount of Rs. 1.31 lakhs. So, the remaining principal amount to be repaid is Rs. 28.7 lakhs.
Now let’s figure out the top-up loan amount she’ll be eligible for. It’s a simple calculation.
Rs. 35 lakhs (70% of market value) – Rs. 28.7 lakhs (principal amount yet to be repaid) =Rs. 6.3 lakhs
Hence, the maximum top-up loan Kavya will be eligible for, based on the above assumptions is Rs. 6.3 lakhs.
Additional Reading: All You Need To Know About Top-Up Loans
Why A Top-Up Makes Sense
Let us tell you why we are saying that getting a top-up loan on your existing loan is a much better option than getting another loan, like a Personal Loan:
Additional Reading: Personal Loan Or Top-up Loan- Which To Choose To Repay A Home Loan?
For starters, you don’t have to worry about documentation and approvals. Since you already have a relationship with the bank and you’ve been paying your existing loan EMIs on time, banks will approve your top-up application in a jiffy. Plus, they’ll offer you an attractive rate of interest too (much lesser than that of a Personal Loan!).
Last but not the least, your bank will offer you a longer repayment tenure and lower EMIs too. Top-up loans come with a repayment tenure of 10 to 15 years. However, this completely depends on the bank.
However, we do not guarantee that you’ll get a top-up loan just because you have an existing loan with the bank. Your bank will consider your repayment ability and your other outstanding loans, if any, too. In short, the final decision will be taken by your bank.
Utilizing A Top-Up Loan
It is almost like a Personal Loan, except that it comes with a better interest rate. Though not as good as Home Loan rates. You can utilise this loan for any purpose. A top loan on your existing home loan is an ideal choice to pay for renovating your house, funding your own parking space, or paying for your child’s higher education, etc.
Additional Reading: Benefits of a top up home loan!
Popular Picks For Top-Up Loans
Of course, you can avail a top-up loan from the bank or financial institution that you have an existing loan with. However, you can always balance transfer your existing loan to another bank that provides better features and then apply for a top-up loan. Here are a few popular choices for top-up loans:
HDFC Top-up Loan – Salaried individuals can avail up to Rs. 50 lakhs top-up loan, whether they are existing customers or new customers who have opted for a balance transfer. Benefits include attractive interest rates, simple repayment structure, and hassle-free documentation. The maximum tenure offered is 15 years.
ICICI Top-up Loan – No collateral required, simple and hassle-free documentation, instant approval and quick disbursal, and low-interest rates (starting from 10.99% for Personal Loan top-up). On a Home Loan top-up, you get a maximum tenure of 20 years and a loan amount equal to 100% of your sanctioned Home Loan.
SBI Top-up Loan – Salient features of a top-up loan on your Home Loan from SBI include low-interest rates with daily reducing balance, long repayment tenure of 30 years, no hidden charges, low processing charges, and no prepayment penalty.
Bonus Read: Understand Home Loan Balance Transfer!
So, what do you think about top-up loans? Do you think they make more sense than taking a Personal Loan? Let us know your thoughts in the comments section below.
This is a very interesting piece of information. Thank you. I have a query. Since you said the loan can be used for various purposes I wish to konw if I can use the same for buying a piece of land as an investment and if there would be a tax benefit for the same and if so under what section and to what extent. Is there a cap to the amount of loan that can be sought or should it be the same as the original loan as the value of the property against which loan was originally taken has now become almost a 1000 times since the loan was taken 15 years ago. I have an existing loan with the HDFC on a floating rate basis.
In anticipation.
Dr.R.Gopinath
I have taken top loan from LICHFL of Rs. 4 lacs on my flat. Can I claim tax rebate on interest amount .
Kishore
Yes
Need Top up loan on Home loan
Hi Bansilal Patil,
Thanks for writing to us. You will need to get in touch with your existing Home Loan lender to see if you are eligible for a top-up loan.
Very elaborative. Thanks
Dear Deepak,
Thanks for your valuable feedback. Please keep reading our blog.
Cheers,
Team BankBazaar
Can we close a home loan and continue the top up loan alone? Another question, what if we want to sell a property on which home loan and top up loan is currently running?
Hi Venky,
It is possible to continue your top-up loan even after closing your Home Loan. If you are planning to sell a property, you can ask the buyer to close the loan after which you can transfer the house into their name.
Cheers,
Team BankBazaar
I have taken top loan from LICHFL of Rs. 4o lacs on my flat. Can I claim tax rebate on interest amount .
Regards,
Vivek
Hi Vivek,
You can claim a tax deduction for the interest portion of your Top-up Home Loan.
Cheers,
Team BankBazaar
“Tax benefits are dependent on the purpose for which the loan is utilized”. Now if I take a Top Up Loan offered by my home loan Financier for financing the higher education of my child and necessarily keep all the records in respect of the purpose for which this top up loan is utilised, why shouldn’t I avail the tax benefit u/s 80E?
Sec 80E nowhere attached any condition about the source of the loan Except for : it has to be taken from an FI or a Bank. PLEASE HELP WITH YOUR ADVICE.
Hi Suprakash,
We suggest that you contact your chartered accountant to find out whether it is possible to avail of tax benefits under Section 80E in this scenario.
Cheers,
Team BankBazaar
I heard that no bank should charge any amount towards foreclosure of a home loan. Is that also applicable to a top up loan on home loan?
Hi KN Rao, Yes, you heard right. There won’t be any charges on foreclosure of a Home Loan even if there has been a top up to the loan. For more information on Home Loans, do check out our blog, and download our App. Cheers, Team BankBazaar
Hi,
Is it possible to use SBI Top UP loan to close Auto Car Loan and Personal Loans?
Thanks,
SK
Hi Sachin,
You could do that. But if the interest on the top up loan is lower than the auto Car Loan and Personal Loan it will make sense to use it. If not, please avoid taking more loans.
Cheers,
Team BankBazaar
Do we have any Tax benifit, If we have used SBI Top Up loan to pay Auto car loan ?
Regards,
Deepak Aparnathi
Hi Deepakgiri Aparnathi,
There are no tax benefits for Car Loans unless you got the loan in the name of your business.
Cheers,
Team BankBazaar
Good evening sir,i had taken 16 lakhs home loan ,on 7/7/2016. My net salary is 33500 and gross is 38000.now i want to take top up loan on sbi. Now i am eligible or not to take top up loan.hom much will i get amount .i am govt employee.so please convey me.
Hi P.raghavendhar,
The logic behind a top-up loan is the fact that you have already started repaying your loan, hence your outstanding loan amount with the bank has already begun decreasing with each payment. A top up just enables you to utilise that margin towards obtaining a loan that you may urgently require to meet some of your needs. Depending upon how much you have repaid on your loan, you will be able to avail a top up loan.
Cheers,
Team BankBazaar
I have taken a personal loan from icici 1 year back and now i want a topup loan. My question will the bank charge any topup loan charge?? processing fee??
Hi soumik biswas,
We suggest that you check with ICICI bank if they will provide you with a top-up loan. You can ask them about the processing fees too.
Cheers,
Team BankBazaar
I have taken a personal loan from icici 1 year back and now i want a topup loan. My question will the bank charge any topup loan charge?? processing fee??
please let me know what are the charges for topup on personal line
Hi soumik biswas,
We suggest that you check with ICICI bank if they will provide you with a top-up loan. You can ask them about the processing fees too.
Cheers,
Team BankBazaar
Hi
Is the repaid amount used for calculating Top up laon also include interest part paid in EMI along with principal? what if the market value of the property has reduced but person has the paying capacity to give for top up loan, considering he has already paid approx 30 months of EMI.
Please Help
Hi Ripusudhan, Usually the value of the property is used to grant top-up loans. Your repayment history will be considered along with the total amount repaid.