Your home is most probably, your single largest asset. But, it might not have occurred to you that your home can be a source of funds, too! A home loan top-up allows one to get extra funds against the existing home loan. It is based on the equity of the house. It can be a great idea for many things apart from the simple need for home renovations, to consolidate debt or even to finance a plot loan.
What is a Home Loan Top Up?
A home loan top-up is a secondary loan secured by your existing home. Over time, assuming that the price of your home has gone up, you have acquired some equity, this being the balance between the current market price of your home and the outstanding home loan balance. Banks & other lenders permit you to take an amount of this equity, which ranges from seventy-five per cent to eighty per cent of the current market value of the property.
Advantages of Taking Home Loan Top Up
There are several advantages to using a home loan top-up compared to other loan options: The following are the benefits that ramp up on getting a home loan top-up:
Competitive Interest Rates: Generally, home loans bear the least amount of interest as compared to personal loans or credit card loans. This leads to low EMIs and additional savings for the consumers.
Flexible Use of Funds: What makes home loan top up favourable is that it is flexible on how the borrowed funds are used. With it, you can consolidate high-interest debts, finance the education of your child, that much-needed dream holiday or even obtain a plot loan.
Longer Repayment Tenure: While utilizing top-ups on home loans, the monthly deliberate amount is lower than the personal loans because of the larger overall term.
Leveraging Existing Security: Since your home is already used as collateral. Thus, when applying for a top-up loan, the procedure can be shorter and simpler than when applying for a new loan.
Using a Top-Up for a Plot Loan
Most people want to have their own piece of plot and build a comfortable house. In order to do so you need a plot loan and it may be essential to note that generally plot loans come at slightly higher interest rates than home loans. Now, that is where a home loan top up can ease your process.
Here’s an example
Suppose you are required an amount required is Rs. 5 lakh for a plot purchase. A plot loan might be provided with an interest rate of 14%. By opting for a home loan top up, one stands a chance of getting the same amount at a cheaper interest rate, probably 10%.
Even a small variation in interest rate can prove to be quite beneficial when distributed across the loan period. For instance, on a five-year tenor, you stand to save more than Rs.50,000/- in terms of interest to be paid.
Conclusion
A home loan top-up may be a necessary financial tool for homeowners, but more importantly, it is a viable one which offers its users an easy and efficient way of finding a solution to their financial requirements. Be it an exercise to remove an existing liability, fund a child’s education, or even availing a plot loan, the home loan top-up serves as a source of the desired amount at the most affordable interest rate. However, successful planning and responsible borrowing can be very advantageous if properly utilized.