Home improvement loans are a type of credit availed by individuals for the purpose of maintenance of their house, renovating the interior, etc. A prime example of such loans is the top up loan among others.
What is a Top-Up Loan?
As the name suggests, top up loans are an additional amount of credit offered by the financial institutions to their existing home loan borrowers. Individuals who have already started repaying their home loans can avail this facility. There are no defined eligibility criteria for top-up loans. It tends to vary from one lender to another.
Apart from the top up loans, there are other credit options for home improvement. Nevertheless, top-up loans are the best option amongst them. Here the top 6 benefits of top up loans that make them a default choice for home renovation.
6 Benefits of Top up Loans
● No end-use restriction
The most significant benefit of this loan is that it has no end-use restrictions. Borrowers can use this loan to fund any home renovation that they want to undertake. Additionally, they can use it to fulfil personal financial requirements as well.
Moreover, the loan value here is higher compared to other home improvement loans because these loans are secured in nature and linked with the existing home loan. However, the loan amount will solely depend on the property value.
● Low-interest rate
Compared to other such credit options, the top up loans interest rate is competitive. The interest rate is similar, or near to the one, they are already paying for their home loan.
● No additional documentation
Since the financial institution has already received the required documents while approving the home loan, there is no need for further documentation. Additionally, borrowers do not have to go through the verification process once again.
However, if anyone has gone through a home loan transfer process, then the lender may ask for any additional documents as per their requirement.
● Instant approval
Home top up loans are approved instantly without much hassle. Since the lender already has the required documents, and there is no need for verification, it makes this loan approval process less time-consuming.
● Longer tenor and flexible repayment
Compared to other credit options which can be used for home improvement, top up loans offer longer tenor and flexible repayment options.
The tenor of top up loans can go as high as up to 20 years or the remainder of the existing home loan. This factor entirely depends on financial institutions. Additionally, factors like the age of the applicant, customer profile, LTV ratio, property value, etc. are also considered here.
Due to the longer tenor of this credit option, the repayment is also more affordable. Borrowers can take help of a top up loan calculator available online to learn more about their EMIs, interest rate, etc.
● Tax benefits
Last but not least, borrowers can avail tax benefits on top up loans. As per the Income Tax Act of 1961, individuals can enjoy this benefit only if they invest their credit amount in home improvement. Under section 24B they can avail up to Rs.2 lakh per annum on the interest paid for such loans.
Prominent HFCs of the country offer top up loans on home loans at attractive interest rates along with favourable terms and conditions. Additionally, this is a secured loan in nature; thus, the loan amount and interest rates are affordable and require no additional collateral.
Individuals repaying a home loan already have significant debt. Availing further credit on unfavourable terms can only increase their financial strain. In such scenarios, top up loans can be a great option to fund home improvement or other expenses.