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Looking to Take Another Loan? A top-Up Loan is a Smart Choice

When faced with an emergency cash crunch, a new and separate financial product can add to a borrower’s existing home loan repayment burden.


  • Personal loan interest rates can range anywhere between 9% and 24% p.a. depending on the borrowers’ credit profiles.
  • On the other hand, top-up loan interest rates currently range from 6.75% to 10.2% p.a. across lending institutions, as of 14th May 2021.

From these two data, any individual can easily compute the larger savings they can enjoy with a top-up home loan instead. These funds have been curated keeping in mind such possible situations and come with a hoard of other benefits.


What are top-up loans on a home loan? 


A home loan top-up makes for an additional source of funding for individuals who have simultaneously availed housing finance. Borrowers can seek a housing top-up loan from their existing lender from whom they have acquired their current home loan. Alternatively, individuals can opt for such financial products when refinancing their housing loan.


Characteristics of a top-up loan


Here is a list of advantageous features that make top up loan so popular among home loan borrowers.


–         Affordable interest rates: As you must have observed from the home loan interest rates mentioned earlier, they are comparatively lower than that of other independent financial products. This can be beneficial for individuals already facing a monetary crunch.

–         Lump-sum loan amount: The top-up loan amount depends on the value of the property against which the home loan has been sanctioned and can go up to 75%-80%. Therefore, for high property value, individuals can avail funds even larger than the initial housing loan amount.

–         No documentation: Lenders already have your required documents from your home loan application. Therefore, borrowers need not go through any documentation procedure all over again.

–         Faster disbursal: A zero-documentation process also speeds up loan disbursal, which is completed within 2-7 days.

–         Convenient repayment:

With a top-up loan, borrowers can avail flexible repayment options via pre-payment and foreclosure options.

–         Flexible usability: Unlike your primary housing finance, a top-up loan does not come with any end-use restriction. This gives borrowers the freedom to finance any requirement with such funds.

–         Annual tax benefit: Borrowers can avail of home loan tax benefits up to Rs.2 lakh under Section 24 on top-up loan interest payment as well. However, this deduction is only applicable if the top-up loan is availed to support house construction or renovation.

To avail of this supplementary financial product with all its benefits, individuals need to meet certain eligibility requirements.


Top-up loan – Eligibility criteria


Existing housing loan borrowers need to meet the following parameters to avail of a top-up loan.

  1. Must have a decent credit report.
  2. Construction of mortgaged property must have been completed, and it must be under the borrower’s ownership.
  3. Should not be a defaulter and must maintain a timely repayment record for at least the past 1 year for the existing home loan.

To prove the last statement, borrowers might need to submit their updated account statements, although the lender already has other required documents.

However, the mere availability of top-up loans and matching eligibility criteria should not be your sole reason to avail of one. Opt for these financial products only when needed.


When should you opt for a top-up loan?


Here are some instances when borrowers should opt for a housing top up loan.

  • They need emergency financial aid for personal requirements.
  • They don’t want to undergo the hassle of elaborate documentation.
  • They are facing severe financial crises where low-interest long-term funds can be helpful.


Note that several lenders charge additional fees for processing, pre-payment, etc. Therefore, borrowing such quick financial products without a valid reason will unnecessarily burden your finances. A great way to cut down on your existing expenses is by seeking a home loan balance transfer with a new lender offering funds at lower rates. If you require funds even after that, only then opt for a top up loan.

Red Note: 30 September 2022

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