The housing market sector in India is expected to reach a compounded annual growth rate of 18% over the next 2 years. This tremendous performance of the market shows that finance for home construction is also in high demand. Therefore, it becomes essential for borrowers to learn about the top-up loan.
What is a top-up home loan?
A loan availed over and above the amount of an existing loan is called a top-up loan. They are a handy financial tool in many ways. Discussing the features will cover the details of all major benefits of top-up loans.
If you are planning to avail a top-up loan, you must know certain characteristic features that define this popular form of credit.
Features of top-up loan that you must keep in mind
Eligibility clause: To be eligible for a top-up loan, you must have an existing loan account with the financial institution. Furthermore, your repayment track record must be satisfactory to the lender. If you have defaulted on payments or have a history of late payments, you are most likely to be denied.
Many lenders do not provide the feature of home loan top-up. In that case, you can opt for a home loan balance transfer to a lender that offers such benefits.
Minimal documentation required: Another feature of home top-up loans is that they need minimal documentation. This is mainly because the borrower already has an existing loan with the financial institution. All the documentation process has already been done while availing the primary home loan on which the top-up is availed. It saves a lot of time and hassle for the borrowers. People who are in urgent need of money can benefit significantly from this feature.
Lower interest rates: The interest rates generally charged for these loans are a few basis points higher than the primary loan. You may, however, opt for a home loan transfer to a lender that offers lower interest rates. It will reduce your interest obligation on the primary loan as well as the top-up. However, many financial institutions do not provide the feature of a balance transfer, Non-banking financial companies provide balance transfer facilities and other beneficial features that encourage individuals to avail home loans.
No end-use restriction: A top-up loan does not come with any end-usage restrictions. There are many ways in which you can use the fund. You can use these funds for financing weddings, higher education, medical emergencies and many more. IT is another reason why these loans are so popular.
High-value funds: Top-up loans are high-value credits. However, the value of loan mainly depends on the value of the property. You can use a top-up loan calculator to determine the amount of credit you can avail.
Tax deductions: Top-up loans generally entail tax benefits of up to Rs. 2 Lakh only on the interest component. There is no tax benefit on principal repayment. Another condition for availing its tax benefits is that you must use the loan to finance your home renovation and repairs. If you use it for any purpose other than these, you are not allowed to claim any deduction as per the Income Tax Act of India.
These are few a basic facts you must keep in mind before availing a top-up. You must compare the top-up loan interest rate charged by different financial institutions and companies, and then finalize the one that you find suitable.