Home >Money >Personal Finance >Top-up home loan works better than gold and personal loans

If your cash flows have been affected due to the pandemic, and you are looking for a loan, you can consider a top-up home loan as the first option. It is a better choice compared with other options such as personal loan, loan against property or any other asset-backed loan, especially if the amount you are seeking is significant.

If a bank is willing to give you a top-up home loan between 8% and 9.25%, the rate for loan against property (LAP) and a gold loan would be higher by at least one percentage point. A personal loan is even more expensive.

Even the tenure for a top-up home loan is longer, which can result in a lower equated monthly instalment (EMI). Typically, the tenure of a top-up loan depends on the existing home loan. Most banks and non-banking financial companies (NBFCs) decide the top-up loan tenure in such a manner that it finishes along with your ongoing home loan. If the remaining tenure on your existing home loan is 10 years, the financial institution will give a top-up for that period.

Gold and personal loans are for shorter tenures (up to three-five years). Many banks offer LAP for a tenure of 15 years.

The maximum top-up loan a borrower can avail ovaries from one lender to another. It also depends on the original loan amount, remaining tenure of the home loan, income and so on. HDFC Ltd, for example, gives a maximum top-up loan lower than 50 lakh or equal to the originally sanctioned home loan, according to its website. Bajaj Finance also provides a maximum amount of up to 50 lakh.

Declare the end use

Most salaried borrowers take a top-up for consolidating their existing debt, or home repairs and furnishing, or children’s education or their marriage. Businesspersons usually take a top-up loan when they need funds for their cash flows. “Banks may ask borrowers to sign an undertaking that they are taking a top-up loan for home repair or property extension. But doesn’t require borrower to submit documents proving the use," said Aditya Mishra, founder and CEO,, a platform that helps borrowers shift their home.

Banks ask for declaration because top-up loan is also classified as a home loan on their books. The self-declaration is a regulatory procedure. “If a borrower states that the reason for the top-up loan is other than renovation, repair or extension of the house, some banks charge them a higher rate equivalent to loan against property," said Gaurav Gupta, CEO, Myloancare, a marketplace for financial products. However, according to the State Bank of India’s and Bajaj Finance’s websites, borrowers can avail top-up loans for any personal use.

Processing takes time

Banks and NBFCs allow the borrower to take a top-up 12 months after the disbursement of the home loan, provided the borrower has got the possession of the house. The financial institution also looks at the repayment track record of the borrower. The loan is granted if there has been regular repayment for at least 12 months. If you have availed moratorium, banks and NBFCs could choose to deny you the top-up loan.

A top-up home loan is not processed as quickly as gold or personal loan. “A lender may look at the current property value, repayment capacity, income, credit score and other factors before sanctioning it," said Mishra. Lenders may take up to a week to sanction the loan. If you need emergency funding, it may not be possible, at least in the current circumstances where lenders continue to face manpower shortage.

If you are taking a top-up home loan to acquire, construct, repair, renew, or reconstruct a house property, you can also get a tax deduction. The tax benefit is available only on the interest portion.

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