Existing home loan borrowers may have to incur big-ticket lifestyle expenses linked to home improvement or renovation, personal travel, car purchase, children’s higher education/wedding, medical emergencies, etc. Those facing monetary shortfalls to meet these expenses can consider availing top-up home loans from their existing home loan lenders.
Let us discuss the top 5 benefits of a top-up home loan for the existing home loan borrowers:
Funds with no restriction on end usage
While top-up home loans can just be availed by the existing home loan borrowers, they do not come with any restriction on end usage of funds except for speculative purposes. Absence of end usage restriction makes top-up home loans an alternative to loan against credit cards or personal loans for existing home loan borrowers. The proceeds of a top-up home loan can also be used for buying a car, financing child’s higher education, etc.
Lower interest rate
Personal loan interest rates range anywhere between 9% and 24% p.a. basis the borrowers’ credit profiles. Interest rates for loans against credit cards are generally a little higher than the personal loan interest rates available to a borrower from the same lender. However, interest rates of top-up home loans are generally the same or a little higher than the prevalent interest rate of underlying home loans. This makes top-up home loans one of the cheapest credit options for the existing home loan borrowers availing home loans at lower interest rates.
Longer repayment tenure
Tenures of top-up home loans basically depend on the residual tenure of underlying home loans. For instance, for an existing home loan borrower having residual home loan tenure of 15 years, his top up home loan tenure can go up to 15 years. The loan tenure of alternative credit options like loan against credit cards and personal loans are generally up to 5 years with some lenders willing to offer a higher personal loan tenure of up to 7 years. As longer tenure leads to lower EMIs, choosing a top-up home loan may assist in reducing the EMI burden. Similarly, existing home loan borrowers seeking longer tenures to finance their car purchase can also consider availing top-up home loans.
Higher loan amount
The loan amount in case of top-up home loans can go up to Rs 50 lakh or more. However, it can primarily go up to the difference between the original sanctioned home loan amount and outstanding loan amount. Loan amount in case of personal loans can range from Rs 50,000 to Rs 40 lakh basis the borrower’s income and repayment capacity. For loan against credit cards, the loan amount is generally a proportion of the credit cardholder’s free credit limit. However, a few card issuers can offer loan against credit card over and above the credit cardholder’s credit limit. Thus, the chances of getting a higher loan amount are much higher in case of top-up home loans, especially for those who have already repaid a significant proportion of the original home loan amount.
Fast processing and documentation
The processing time of top-up home loans is usually longer than loan against credit cards and personal loans. Loan against credit cards are usually disbursed within the same day of loan application whereas personal loans are disbursed within 2-7 days. However, some lenders have started offering pre-approved top-up home loans to their existing home loan borrowers. Such lenders generally claim to disburse top-up home loans within the same day of loan application. This allows instant top-up home loans to compete with credit card loans and instant personal loans in terms of quick disbursal.
(By Ratan Chaudhary, Head of Home Loans, Paisabazaar.com)