A top up on home loan is a product that offers funding over your existing outstanding debt. The amount of the top-up loan, when combined with ongoing housing finance, can never exceed the LTV permitted under the RBI guidelines. The key feature of this product is that you are free to use it for any legal purpose.
Let’s look at some of the situations where people utilise this loan product.
Best Way to Use Home Loan Top-Up
1. Home Renovation
Home requires regular upkeep. The house you financed ten years ago might now have water leakage, rusty pipes, or broken walls. If you do not put effort into maintaining it, its lifespan will be reduced by half.
However, repairs that might sound cost-effective are not always so. For example, if you own a 1000-square-foot duplex and wish to paint the entire house and work on interiors, it will cost you around Rs 3-4 lakhs. And since you might already have many fixed expenses, opting for a top-up loan is a feasible option instead of paying for this expense.
2. New Construction
Over time, your family will grow. It is possible that when you financed your house, you were single. But now, after spending eight years on the loan, you have a spouse, children, and parents living with you. To ensure they live comfortably, selling your existing property to buy a new one is not a great deal. Instead, you should focus on constructing an additional floor with 2-3 rooms, depending on the size of your house.
Adding a new floor costs around 60-70% of the previous construction cost. If you wish to bear the entire expense out of your pocket, you will deplete your savings.
That is why applying for a home loan top up on relaxed terms and conditions is recommended.
3. Higher Education
Rising education costs have made it difficult for the middle-income population to send their children abroad for higher studies. For example, consider taking an MBA course at a reputable foreign institution. It will cost between Rs 70 lakhs and Rs 1 crore, including college fees, accommodation expenses, and travel costs.
Paying this amount using your savings is not possible. Even if you apply for a personal loan, the amount might not be sufficient to cover all expenses.
That is where a top-up loan comes to your rescue. However, obtaining significant funding through this option is only possible if you have paid off a major portion of the principal outstanding.
4. Wedding Expenses
Weddings are another costly affair in a country like India. Reserving a banquet hall in a tier two city would be around Rs 3-5 lakhs. Next, set aside Rs 1-2 lakhs for dresses and expenses. But the most expensive aspect of the entire wedding is buying jewellery. You need to set aside around Rs 5-10 lakhs to pay for them.
Top-up loans can help you deal with wedding-related expenses.
5. Plot Purchase
Investing in real estate is always considered the safest bet. Even if you have more than one house or plot, you can still acquire more and rent it out for passive income. Considering this fact, many use a top-up home loan as an alternative to traditional loan for plot purchase. The benefits they enjoy by doing so are reduced paperwork, no property appraisal, and, most importantly, lower borrowing costs.
Conclusion
A home loan top-up offers flexible funding over existing debt. Its versatility caters to various needs, from home renovation to higher education expenses and plot purchases. By leveraging this option, you can address important financial commitments without depleting savings or resorting to multiple loans.