It often proves to be a great finance solution for any homeowner in search of funds as they don't want to make a fresh application for a loan. You've got a current home loan where you've sufficiently built equity from your property and you want the extra amount which can be loaned at appealing interest rates through a top up on home loan, instead of having complicated applications for another loan.
What is a Top-Up on Home Loan?
A top-up on home loan is an additional loan that you can take on top of your existing home loan. Essentially, it allows you to borrow more money, using your property as collateral, without going through the process of applying for a new loan. The top-up amount is usually based on the outstanding loan balance, the property's current market value, and the lender's policies.
How Does a Top-Up Loan Work?
You can apply for a top-up home loan if you have an existing home loan and require additional funds. The loan amount is generally calculated as a percentage of your remaining home loan balance or the market value of the property.
The key eligibility factors for the top-up loan are:
Available Loan Balance: You must have a home loan with the remaining balance eligible for a top-up. The more equity you build up, the better the potential for getting a top-up.
Property Value: Lenders also evaluate your property's market value. The higher the market value of the property, the more you can borrow as a top-up.
Repayment History: Lenders prefer borrowers who have a strong repayment history. If you’ve been making timely payments on your original home loan, you’re more likely to get approval for a top-up.
Benefits of a Top-Up on Home Loan
- Lower Interest Rates: Since the loan is secured against your property, interest rates for top-up loans are generally lower than those for unsecured loans, such as personal loans or credit cards.
- Flexible Utilization of Funds: The funds obtained from a top-up on home loan can be used for any purpose, whether it is home renovation, medical emergencies, education, or even debt consolidation.
- Streamlined Approval Process The process of getting a top-up loan will be much easier and often faster since the lender already has details about your existing home loan.
Top-Up Loan vs. Collateral Loan: What's the Difference?
Although both top-up loans and collateral loans use an asset to provide security, there is a difference between the two:
- Top-Up Loan: Top-up on home loan is an additional loan on an existing home loan. It is easier to get because the lender already has a record of your existing loan and property value. This type of loan is often more convenient for homeowners who want to borrow money for specific purposes without taking out a completely new loan.
- Collateral Loan: A collateral loan is a loan taken against an asset, such as a car, jewellery, or even property. Although the asset may differ, the lender will calculate the value of the asset and lend you a percentage of it. Collateral loans can be applied for other purposes, and the process to get such loans may require more documentation and appraisals compared to getting a top-up on a home loan.
Things to Consider Before Opting for a Top-Up Loan
Before you apply for a top-up on home loan, consider the following factors:
- Loan Amount: Be sure that the top-up amount you borrow is manageable and that you can afford to repay it within the agreed terms.
- Interest Rates: Top-up loans are generally much cheaper compared to unsecured loans, though varying between lenders; hence, get to compare numerous offers for that most cost-efficient one.
- Repayment Terms: Ensure you have no issues regarding the repayment and the overall length of the loan. A larger tenure will cause your monthly payout to decrease though increase the actual interest you'll pay.
Conclusion
A top up on home loan is often the most hassle-free and low-cost way for homeowners to receive additional funds from their home as they have managed to build some equity in them. The flexibility of using money and lower interest rates make this an attractive product for those looking for quick money without the pain of applying for a new loan.
