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Ipsa Rai | 10 Feb 2023

Home Loan Top Up: Interest Rates, Tax Benefits - A 101 Guide

Home Loan Top Up: Interest Rates, Tax Benefits - A 101 Guide

Table of Content:

  1. What Is A Top-Up On Home Loan?​
  2. Benefits of Top Up Loan On Home
  3. Home Loan Top-Up Interest Rate
  4. Tax Benefits On Home Loan Top Up
  5. Home Loan Top Up: Eligibility
  6. Home Loan Top Up: Request Process
  7. What Should You Look For In A Home Loan Top-Up Lender?

Your home equity loan refinancing funds are flexible and can be used for anything from buying new furniture to remodelling your current home. Borrowers already in possession of a home loan can access this without providing any additional collateral or guarantee. A home loan top up offers lower interest rates and potential tax savings.

What Is A Top-Up On Home Loan?

A home loan top-up is an additional loan that is made available to home loan borrowers by financial institutions. There are some financial institutions, however, that do not place any restrictions on how a top-up on home loan can be utilised which is in contrast to other financial institutions, which do place such constraints.

Also Read: Important Tips To Keep In Mind While Applying For Home Loan

Benefits of Top Up Loan On Home

There are a number of positive aspects to getting a top-up loan on your home.

  • The home loan top up interest rates are much more reasonable than those of home equity loans and individual loans.

  • Useful for a wide range of purposes, from new building costs to remodelling and enlarging existing structures

  • It can be used for either individual or corporate transactions, depending on the financial institution.

  • Home loan top up enables tax benefits and helps reduce tax bills.

  • If the funds are used exclusively for home building or remodelling, then you may be eligible for tax breaks.

  • Increased efficiency in both the application and funding phases of loan processing

Home Loan Top-Up Interest Rate

Add-on mortgages have the market's lowest interest rates, beginning at 7.10 percent. There's no need for the terms of the loan and the mortgage to differ. The highest possible sum may be based on the current home loan balance or on the bank's own policies. Up to one percent of the loan amount may be charged as processing fees.

Tax Benefits On Home Loan Top Up

If the additional loan funds were used exclusively for the purchase, development, improvement, or maintenance of a single-family residence, then you may be eligible for a tax deduction. 

  • If the home loan top-up was used to purchase a primary residence, the borrower may be eligible for a tax credit of up to Rs. 30,000. 

  • There is no cap on the write-off if the loan was used to acquire a rental property. Nonetheless, both of these are covered in the Rs. 2 lakh annual limit on the interest portion of home loan tax deductions.

  • Both the principal and interest on a top-up loan for home can be written off against your taxable income, up to the limits set by Section 80C and Section 24(b), if the money was used to buy or build a new home.

  •  If, on the other hand, the additional funds from the home equity loan are put toward the renovation, alteration, or repair of residential property, then the interest portion of the loan is the only part of the loan for which the deduction can be claimed and not the principal.

In order to claim home loan top up tax benefits, it is essential to keep all of the receipts and documentation relating to the work that was carried out on the residential property using the top-up loan.

Suggested Read: Home Loan Insurance Is A Simple Way To Protect Your Home Loan

Home Loan Top Up: Eligibility

For the most part, the top-up loan eligibility requirements will be the same as those of the original home loan from the bank. To a certain extent, this varies from one financial institution to another. Here are a few things one must keep in mind:

  • At most, there should have been one EMI recalculation in the prior twelve months.

  • It is imperative that any EMI bounce be resolved before the subsequent EMI is due.

  • There must be a clear payment history of the existing home loan for a minimum of six months. 

  • It is important to have a clear repayment history for at least one year when applying for top-up loans combined with balance transfer home loans from other banks.

The following are the general eligibility requirements for getting a home loan top up, which are the same as those for home loans but can differ from one financial institution to another:

  • Age ranges from 21 years to 65 years old

  • Both resident and non-resident Indians are considered to be of Indian nationality.

  • Individuals who are self-employed or receive a salary for their work

Also Read About: Hidden Charges In A Home Loan

Home Loan Top Up: Request Process

A top up loan on home loan can be applied for in a variety of ways, some of which vary from bank to bank. Common methods of requesting a top-up loan include the following.

  • Direct applications for home loans should be made at the local branch of the lending institution.

  • To apply, simply go to the bank's website, fill out an online form, and leave your contact information.

Keep Reading: Top Frequently Asked Questions On Home Loans In India

What Should You Look For In A Home Loan Top-Up Lender?

The following pointers will guide you in your process of selecting a lender:

  • Top-up loans from your current home loan lender may come with a higher interest rate or a lower interest rate than those offered to existing customers, depending on the bank. Compare the interest rates for top up loans offered by your bank for new customers to the rates offered by other banks for existing customers to get a better idea of the best option for you. 

  • Depending on the bank, current customers can get a longer or full home loan term, while new customers can get a much shorter term.

  • Pick the right bank for your needs financially because some have caps on the amount of money existing customers can borrow for a home equity loan, while others have no such cap.

  • If you need to pay off your top-up home loan early, you can do so without any fees from any lender.

You can quickly and easily raise funds and cover any unforeseen expenses with a home loan top-up. With a strong history of on-time payments and a high credit score, you may be able to negotiate a lower interest rate on a personal top-up loan. If you have already been making payments on the personal loan for some time, you need to make sure that you don't miss any of the deadlines for making payments. Before making a final choice, it is essential to conduct an in-depth analysis of the entire process.


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