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How to Use Top up Home Loans Effectively



A Top Up Loan is a kind of additional funding that can be obtained from a bank if the person already has some kind of existing loan arrangement with it. This is a kind of universal loan that may be availed if additional financial needs crop up and so the top up can be applied for sudden and large medical expenses, to pay for higher education, for a wedding in the family or as down payment for a car. A Home Loan EMI calculator helps calculate how much one would have to pay each month as a repayment for the existing loans and so one should only apply for a Top Up Loan if they are confident they would be able to repay it as well along with the original loan, as the EMI would go up.

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In case one does apply for such a top up, there are quite a few benefits to be enjoyed from it though and one should use it to their best advantage.


  • It provides an improved scope for negotiating a loan amount. With the help of a Home Loan eligibility calculator, one can determine how much loan amount one could apply for based on their present income and once the basic eligibility is met with, Top Up Loans are extended to current Home Loan borrowers. One should have paid the existing Home Loan without any delays for at least 6 months to apply for a top up and this is mostly 70% of the original loan amount. The high point is, that if income increases, there is the scope for negotiating for higher loan amount in future, or if the original loan has been paid off to a large extent, and in this way one would keep fulfilling every need of the family over time.


  • To apply for a Top Up Loan, one would have to submit the same document required for Home Loan, in addition to the bank records that shows that the existing Home Loan is being steadily paid off. The original documents include photo ID, age and address proof, income proof like salary slips of the last six months, banks statements of the last three months, and IT returns of the last three consecutive years, and business proof like TAN and sales tax papers for self employed people. One already has these documents in place as they had applied for a Home Loan earlier and so if an additional loan could be obtained without hardly any extra paperwork, then why not? In fact, in some banks, there is no need to submit the documents anymore as the borrower has already gown through a round of verification and the top up is automatically approved.


  • Today many banks and NBFCs like Bajaj Finserv are offering the lowest Home Loan interest rates as possible and the interest rate on the top up is higher by just about 1.5% to 2%. However, with an interest rate of around 11% to 12%, the top up can be a cost effective solution because applying for another personal loan or even gold loan would prove to be far more expensive because these loans mostly carry an interest rate of 14 to 24% a year. Education loans might have lower interest but one would have to go through the paperwork again and these are secured loans and providing a collateral can again be a cumbersome task. One would hence have to pay far less towards the EMIs for a Top Up Loan than one would have ended up paying had they applied for another personal loan.


  • There are a number of tax benefits to be availed for Top Up Loans which one should make full use of. If one applies for a Top Up Loan to purchase a property, then the interest and the principal repayments would be eligible for tax deductions under the 80C and section 24 of the IT Act. Hence, not only would one get loan for a house with the least hassle possible, but they would also be enjoying tax benefits. However, such exemptions are only allowed for buying a home and not if the top up has been applied for some other reason.