Personal Loan or Top-up Loan- Which to Choose to Repay a Home Loan?
by Robbin Kendy Home Loans in IndiaEverybody needs a home of their own where they can play
video games in their boxer shorts or sing loudly in the shower. So, let’s
assume you took the plunge to get your home and took a Home Loan of Rs. 35 Lakh
two summers ago. You’ve started repaying the loan EMIs but you have a sudden
financial emergency and you’re going to be strapped for funds for the next few
months. What do you do now?
Take a Personal Loan?
Take a Top-up Loan on your Home Loan?
Mmmm… ? A Personal Loan, right? Because I can do what I want
with it, no questions asked, and there’s no collateral required.
If this is your answer, well, this might be good reasoning,
but there is one shortcoming. The interest rate! A Personal Loan might seem
like the easy way out when you’re short on funds but if you compare it to a
Top-up Loan, you’ll find that the interest rate is much higher for a Personal
Loan. The average rate of interest on a Home Loan is normally about 3-4
percentage points less than that of a Personal Loan and the interest rate on a
Top-up Loan 1-2 percentage points more than that of a Home Loan. The figures
speak for themselves. A Top-up Loan will definitely burn a smaller hole in your
pocket than a Personal Loan.
Here’s the best part; just like a Personal Loan, you do not
have to explain to the bank why you are taking the Top-up Loan. Banks will not
ask you the reason for it and will not monitor how you use the funds. You can
use it for any purpose and benefit from a better rate of interest too.
Are you serious? Tell me more!
Before you decide to take a Personal Loan to repay your Home
Loan, speak to your bank about a Top-up Loan. This loan is cheaper than a
Personal Loan and it makes you eligible for tax benefits as well. But applying
for a Top-up Loan does not necessarily mean you will receive it. Banks will
consider your repayment ability, among other things, before sanctioning a
Top-up Loan.
Keep in mind the following two conditions before applying
for a Top-up Loan:
You have to get the Top-up Loan from the same bank which
sanctioned your Home Loan.
Banks offer Top-up Loans 6-12 months after disbursing the
Home Loan and only if you have made your EMI payments on time.
These two basic terms are considered by all banks before
disbursing Top-up Loans. But there maybe be additional factors considered by banks
to determine your eligibility for one.
How much Top-up Loan can I get?
You can get a Top-up Loan for an amount to the equivalent of
70%-75% percent of the market value of your property, minus the Home Loan
amount outstanding. To explain this with an example:
The market value of your property at the time of the Top-up
Loan application is Rs. 40 Lakh. 75% of your house value is Rs. 30 Lakh. You
have an outstanding balance of Rs. 25 Lakh on your Home Loan. This will qualify
you for a Top-up Loan amount of Rs. 5 Lakh.
Sometimes, banks cap Top-up Loans so that this amount plus
the outstanding amount on your Home Loan stays within the original sanctioned
amount of your Home Loan. For example, if your Home Loan was sanctioned for Rs.
40 Lakh and your outstanding is Rs. 25 Lakh, the maximum Top-up Loan you can
get is Rs. 15 Lakh. This will keep the total loan amount, at any point, within
the Rs. 40 Lakh range.
Do I get more time to repay Top-up Loan?
No, you must repay your Top-up Loan within the tenure set
for your Home Loan. If you Home
Loan tenure are 10 years, you must repay the Top-up Loan within this time
period.
Do I have to provide collateral to get a Top-up Loan?
Now this is one of the perks of a Top-up Loan. You do not
have to provide collateral to get one.
If you take a Top-up Loan, you can apply for tax benefits
under Section 80C and also under Section 24 of the Income Tax Act if you choose
to use the funds to buy or construct another house.
So, if you are in need of money to repay your Home Loan or
to undertake renovations, a Top-up Loan will be a wise choice compared to a
Personal Loan. It is easier on the pocket and offers you nearly all the perks
of a Personal Loan.
[Source: https://blog.bankbazaar.com/a-personal-loan-or-a-top-up-loan-which-do-i-choose-to-repay-my-home-loan/]
Sponsor Ads
Created on Dec 31st 1969 18:00. Viewed 0 times.