A home is probably the largest financial purchase most people will make in a lifetime. While owning a home may be the dream, to make that dream come true you need the help of a home loan. And what happens if one needs some more money in the future to carry out some renovations, education or to pay off some credit card debt? It is with this consideration that availing a top up on home loan makes the best choice.
What is a Home Loan Top-Up?
A top-up on a home loan means borrowing an additional amount on the existing home loan as per the equity of the property. In simple terms, you are receiving a new loan on top of your existing loan, and the terms of the top-up are primarily based on the current market value of your property minus your outstanding balance.
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Advantages of a Home Loan Top-up
While for many, taking an additional loan on top of an existing loan might appear stressful it can help you in many ways.
Competitive Interest Rates
Top-up loans are cheaper than personal loans or credit card loans, meaning that they are a better option when it comes to the cost of borrowing.
Convenience
The process of applying for a top-up loan is often easier compared to a new loan if you are venturing with your existing lender.
Flexibility
The top-up amount that is usually borrowed can be utilized for any purpose you desire; like home improvement, paying off debts, child education, or even going on a dream holiday.
Simple Process
The process of applying for top-up is easier and a lot simpler than applying for other home loans. It saves your time as well as the hassle of finding a trusted lender.
Tax Benefits
In some countries, the interest charges on home loan top-up for particular activities like remodelling or renovation are tax-free. It is important to contact a tax consultant to find out the relevant rules that apply in your area.
Important Considerations Before You Top Up on Home Loan
Eligibility
Eligibility of top-up loan and maximum allowable loan amount is thus more likely to depend on creditworthiness, repayment history of the existing home loan, and the current market value of the property.
Impact on Repayments
A top-up means getting an additional amount which may increase the loan and lead to a high overall interest. It is also advised to use a home loan prepayment calculator to understand the impact of monthly instalments and the overall cost of the loan.
Top-Up Purpose
One should consider how one will use the top-up amount. It most definitely should be for investment that enhances the worth of the property or one that has a positive impact on your financial position.
Steps to Apply for Home Loan Top-Up
Contact Your Lender
Consult with your current home loan provider regarding the regular top-ups. You can consult them to assist in the process and get all the relevant information regarding the specifics of their requirements and interest rates offered.
Important Documents
Submit the important documents to the lender for a quick process of top-up on the home loan. The documents may include identity proofs like proof of income, property-related documents, and repayment history of your current housing loan.
Loan Approval
Your lender will assess your application and decide on how much they will extend to you as a top-up amount. This may depend on various factors and one such important factor is your repayment history of the current loan.
Agreement and Disbursement
After that, you will need to sign a loan agreement with the conditions that were agreed upon at a previous stage. Once the top-up amount has been received, it will be processed and credited to the account.
What Are the Home loan top-up alternatives that one can choose?
Personal Loan
These loans come at a higher interest rate than a home loan top-up and might take slightly longer to avail.
Credit Card
Although credit cards offer financial flexibility, charging a large amount to that card may be dangerous because of extremely high interest charges and debt pitfalls.
Home Equity Loan
It works in the same way that a top-up does, that is, it enables one to borrow money from a home equity loan. However, it is a different loan with its terms and conditions.
Conclusion
A top-up on a home loan is a flexible loan type to borrow more money without the burden of a high cost associated with other loan types. Nevertheless, it is highly advisable to be extremely wise while assessing one’s abilities and needs, the capacity to repay and the overall implications on your financial situation. Use online tools such as home loan prepayment calculators to make the right decision. This way, timely planning of the home loan top-up will help you unlock the home’s equity and achieve your financial goals.
