Hyderabad: Banks are making good offers to existing customers who are regular in paying instalments. If you took a home loan five years ago, the value of your home might have increased by now. At the same time, your income would have also gone up. Considering these aspects and your repayments, the banks offer you top up loans on your existing home loans. When can you go for such top ups? Let us find out.
These days, interest rates on home loans are rising. It has already reached 8.5 to 9 percent. As per some estimates, rates of interest may go up by another 35 to 50 basis points in the future. Amid this, banks are scrambling to offer new loans. They are trying to retain and refinance those who have been making disciplined instalment payments so far. Moreover, there won't be any hassles since the banks already know the borrowers.
However, not all the benefits under home loans will be available for borrowers of top ups. As per Section 24 of the Income Tax Act, the interest paid on home loan is tax deductible up to Rs 2 lakhs, and the principal is tax deductible up to the limit of Section 80C. A top-up loan usually does not have this facility. Exemption applies only when used for house extension. Adequate evidence should be provided in this regard.
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Regardless, there are some advantages that a top up home loan offers you when you really need money. Top ups can be taken for longer tenures and at lower interest compared to personal or gold loans. Depending on the tenure of the home loan, the top-up loan tenure is also decided. If the home loan is to be paid for 15 years, the top-up loan is also given for a period of 15 years. Other loans do not have this duration.
Different banks fix different rules. You should first know your bank's top-up rules. If you don't need money at once, you can avail the overdraft facility in top up loan itself. It has a slightly higher interest rate compared to a home loan. It is possible to borrow money only when required and for a long time. Interest is charged on the amount used. As a result, there will not be much burden.
In case of existing home loans, banks already have all the details of a borrower. It also shows how the loan instalments are being paid. For taking a top up loan, all the borrower needs is to provide details of correct payment of instalments, proof of income and some other documents. The amount of top-up loan depends on the income, home loan amount, market value of the mortgaged property, etc.
Usually the interest rates on these top-up loans are similar to the home loan interest. So, these can be termed as low interest loans in the current situation. Now some banks and loan institutions are sanctioning top up loans in advance. Instead of taking high interest loans, it is better to choose this when you need money.
