Let us say you bought a home a decade ago. In case you need to renovate your home, you can go for a personal loan or a home improvement loan to fund your expenses.
The other option is to take a top-up home loan, which may work better for some reasons. “A top-up home loan allows borrowers to access additional funds over and above their existing home loans. It can be used for various purposes, including home renovation or home extension,” says Atul Monga, CEO and co-founder, BASIC Home Loan.
Lower Interest Rates
The interest rates for top-up home loans can vary based on several factors, including the lender's policies, the borrower's credit profile, and market conditions. “Typically, the interest rates for top-up home loans are slightly higher than the interest rates for regular home loans but lower than those for personal loans and other loans,” says Raoul Kapoor, Co-CEO, Andromeda Sales and Distribution.
Larger Loan Amount
You can also borrow a larger amount with a top-up loan compared to a home renovation loan, as it is based on the existing home loan.
Longer Tenure
The tenure and equated monthly instalment (EMI) of a top-up loan can vary depending on the amount borrowed by the applicant and their overall financial situation.
The tenure for the top-up loan is usually aligned with the remaining tenure of your existing home loan. However, lenders may offer some flexibility, allowing you to choose a shorter tenure if desired.
“Many lenders provide the option to choose the tenure for the top-up loan, allowing borrowers to decide based on their repayment capacity and financial planning. If you choose a longer tenure, the EMIs would be lower but the total interest paid over the period would be higher. Conversely, a shorter tenure would mean higher EMIs but lower total interest cost,” says Kapoor.
Flexibility
Flexibility is another benefit of top-up loans. “While home renovation loans can be used exclusively for home improvements, top-up loans can be used for various purposes such as funding higher education, covering medical expenses, or even for debt consolidation,” says Monga. So if you are going for a top-up loan, you can use a part of the money for other purposes too.
In the end, the decision rests upon you. It is important to have a clear idea of your EMI outgo (which will increase) and your cash flows before you go for a top-up home loan.
