top-up loan

Unlocking Home Equity with Top-Up Loans: A Practical Overview

Buying a home is a major commitment and a humongous task. With almost 70% of all homebuyers relying on home loans to help them arrange the funds needed to invest in the housing sector, it is not surprising that the demand for housing loans has increased significantly. What is surprising is that in the recent past, the demand for home loan top ups has also increased. 

What is a home loan top up? A home loan top up refers to a second loan availed of over and above one’s current home loan. Home loan top ups allow borrowers to unlock the equity locked in their homes. 

Home Loan Top Up: Benefits 

1. Low Interest Rates: One of the most important benefits of home loan top ups is that these loans are sanctioned at a very low rate of interest. Borrowers can expect to pay 1% to 2% higher on their current home loan interest rates. The low rate of interest applicable on these loans makes it possible for borrowers to keep their EMIs affordable. 

2. Long Repayment Tenor: Home loan top ups come with a long repayment tenor. Your home loan top up tenor will be the same as the remaining tenor on your home loan. A long repayment tenor is an added advantage as it allows borrowers to repay their loans comfortably and through affordable EMIs. 

3. Zero End-Use Restrictions: One of the key reasons why home loan top ups are a good way to raise money is that lenders place no end-use restrictions on the top-up loan money. Borrowers can use the money to take care of a family medical emergency, pay a child’s tuition fees or even invest in another property. 

4. Quick Approval: When you apply for a top-up loan, the lender you are applying to already has all the documents they will need to sanction your loan. Thus, top up loans are approved and disbursed quickly.  

These benefits make home loan top ups a highly beneficial facility. However, these loans have disadvantages too. 

Home Loan Top Ups: Drawbacks

1. Increased EMIs: One of the biggest problems with home loan top ups is that they increase the loan amount and therefore, one’s loan EMIs. Thus, when availed of after careful planning, home loan top ups make life easier and help borrowers fulfil their dreams and desires comfortably. However, in the absence of financial planning or if availed of without considering one’s income, home loan top-up EMIs can easily become burdensome and difficult to repay, especially in times of a financial crisis or if you are not as financially stable as you expected you would be.

2. Reduced ROI: Another problem with home loan top ups is that they reduce the home loan ROI. When you increase the home loan amount, you also increase the interest payout on the loan, which in turn causes the cost of borrowing money to go up. Thus, availing of a top-up loan can lead to reduced home loan ROI. 

Final Words

Home loan top ups are an excellent way to arrange money. However, borrowers must avail of top-up loans only after carefully weighing the pros and cons. If you really need the money and you need it quickly, availing of a top up loan on your home loan is most certainly better than availing yourself of a personal loan, which invariably comes with a very high interest rate and a relatively short loan tenor.

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