Home Loan vs Top up Loan: Benefits and Uses of Both

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Home Loan vs Top up Loan

A home loan is every middle-class working Indian’s resort for fulfilling the dream of owning a house. It is the first step to owning a property of your choice within your means. A top up loan is a loan that can be availed after availing of the home loan. This is usually done to augment the home loan funds, undertake upgrade work in the house.

Let us understand the features and benefits of each type of loan, starting with a home loan:

Home Loan: Features and Benefits

  1. One of the primary advantages of a home loan is access to a large quantum of funds at a far lower interest rate compared to a personal loan or gold loan or business loan.
  2. The second important benefit and feature of a home loan tenure. Typically, home loans have a tenor of at least five to up to twenty-five years. This makes the EMIs payable, affordable, and less burdensome.
  3. When you avail a housing loan in India, you also have a high probability of seeing your property’s value appreciate, during the loan tenor, at a rate greater than its interest rate. This makes a case for overall capital growth and gain.
  4. A home loan is a great way to save money. You are compelled to inculcate a habit of saving money to pay your EMIs and in the process, also work towards freeing your property from the bank’s debt to you. At the same time, the tax savings benefits of a home loan is a huge attraction for all working people in the country who end up saving a lot of tax money.
  5. A home loan is a gateway to a top up loan. If the borrower continues to repay their home loan diligently, without delays and defaults, they become better eligible for a top up loan at a competitive rate. This augments the overall loan eligibility of the borrower during the tenor of the home loan. 
  6. Another great feature and benefit of a home loan is the process of due diligence by the lender and/or bank. The lender not only reviews the applicant’s credit score, income slabs, and assets, they also ascertain the credibility of the builder of the property in question. They can help the applicant not lose money in an ill-reputed or legally troubled project. At the same time, when a lender approves a home loan for a project, they also show confidence towards the commercial value of the property in question along with the reputation of the builder. 

Top up Loan: Features and Benefits

  1. A top up loan enables the borrower to upgrade their residential property and undertake important repairs and renovations during the life of the home loan for a home loan alone is meant purely for the purchase of the house
  2. A top up loan is granted only over and above the original home loan and after the lender is satisfied with the borrower’s EMI payment regularity, discipline, and timeliness. The lender also again checks the borrower’s credit score, income slabs, and so on. Thus, the borrower can access these funds at a much lower interest rate than a personal or gold loan even though the top up component has a slightly higher interest rate than that of the home loan. 
  3. A top up loan can have a tenor which lasts the remainder of the home loan tenure or up to 10 years, basis the lender’s policy and discretion. Even otherwise, its tenor is far longer than that of other unsecured loans, such as a personal loan or even a gold loan. This eases the additional EMI burden of the borrower, spreading out the repayment sum over a longer duration. 
  4. One of the best features and benefits of a top up loan is that, unlike a home loan, a top up loan can be used for multiple uses, such as funding medical treatment, house renovation, education, wedding, and so on, except for speculative purposes. This helps the borrower access much-needed funds to meet unforeseen expenses without having to drain his resources. The home loan and the top up loan together enable the borrower to live a comfortable life and ease their EMI stress. 
  5. The approval process for a top up loan is also quick as the lender already has pre-existing and first-hand information on the borrower’s credit repayment habits. Thus, instead of opting for a personal loan with any other lender, opting for a top up loan with the same lender is prudent. 
  6. If the top up loan is utilised towards the home upgrade, then it can be used to avail additional tax benefits, over and above the tax benefits claimed on home loan repayment. 

Thus, a home loan and a top up loan complement each other well to make the dreams of the borrower come true without forcing them to considerably downgrade their lifestyle. 

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