Top-up loan, is a facility by which an individual who has an existing home loan gets a chance to borrow additional money from the housing loan company at an interest rate that matches a home loan.

The edge here is that the HFC would not enquire about the usage of the money. The lenders don't seem to care if you divert this for other things. You can invest that money for your child’s education or buy the much-needed computer to fulfill his educational needs. It is a kind of personal loan being offered to you at the interest rate of home loan. At present when the interest for personal loans are somewhere in the range of 18-20% and home loans are being offered at 7-9% this sure is a good bargain.

The extra amount is given depending upon the amount, tenure of the existing home loan and your track record. The topping up amount can range from a conservative 20-30% of your current loan.

For example, IDBI Bank gives its customers a top-up loan subject to a maximum total loan outstanding of 85% of market value of the house property or documentary cost whichever is less. Suppose you have a home loan outstanding of Rs 300,000 and the current market value of your house property is Rs 800,000 and you have taken the housing loan 2 years ago for around Rs 375,000. Then you are eligible for a "top up" on your loan with another Rs 60,000. Normally for a loan with outstanding of 7 months to 1 year the top up you get is 10%. For 2 years it is 20% and 3 years or more it is 30%.

Compare home loan interest rates

You can get a top-up loan provided in situations if the market value of the property goes up, leading to higher loan eligibility. This is because banks and HFCs give loans based on the collateral value and any appreciation in the collateral value makes one automatically eligible for higher loan amounts than before. Secondly, as you pay your home loan, your loan outstandings would also fall. And that, in turn, would make you eligible for more loans, to the extent of the original loan amount. But the downside of the top-up loan is that you are not offered any tax benefits on the amount taken.


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