Want to repay high-cost debt? Try a top-up loan

If you have taken a home loan which is six-month old, with a regular repayment record and are in need for additional loan to repay your high-cost personal loan or credit card over dues which is on higher rate of interest or want to redo your home for the festival season, top-up loan on your existing home is best suitable option available in market.

Here we will explain what is top-up loan, what are its benefits and how one can easily apply for it.

A top-up loan is an additional loan or a loan over and above your existing home loan given to you depending on the market value of the home mortgaged.

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The author is CEO, Easyfinance.in, a web site that offers information on home loan, car loan, personal loan, mortgage loan, education loan, business loan, term loan project loan in India and apply for a loan online.

In such kinds of loan customers can utilise the funds for fulfilling the requirements of customers on which there are no end use restrictions.

So the loan is provided even to fulfill personal requirements such as funding children's education, marriage or buying a hi-tech laptop, furniture for your home, or for paying the personal loan or even credit card dues which is on higher interest rate.

"I took a top-up loan on my existing home loan and invested it to purchase a property in my native place" says V V Ramana Rao, a young media professional in Bangalore.

In another case Shailesh Shinde who had got a home loan from a bank a few months back took a top-up loan for the 15 per cent payment of his new flat. He also took fresh home loan for the balance payment.

In one more case Suhaan Faridi borrowed top-up loan for renovation of his existing flat and even paid his medical expenses, which he incurred recently due to dengue.

For availing a top-up loan you need to have a home loan, which is at least six month old with clear repayment record. Banks take into consideration a few parameters before determining the loan amount. Such as market value of the property, the loan repayment history, the loan amount outstanding for the original home loan plus the top-up loan should not exceed 75 per cent of the market value.

The repayment capacity will be checked by the bank such as customer's credit score and the individual's income just to ensure that the repayment capacity has not changed since the disbursal of the home loan. The maximum tenure that a customer can avail is to the extent of the outstanding tenure of the existing loan or 10 years which ever is lower.

The rate of interest charged in a top-up loan is in between 12 to 14 per cent depending from bank to bank.

The tax benefit is allowed only on the interest portion under section 24 of the Income Tax Act. However one can claim tax benefit on the principal amount if the loan is used to repair/renovate/acquire/construct property and if proper documentation is present, the individual will be eligible for tax benefit on the principal too.