The new generation of workers had just started with their home building dreams and then suddenly someone ate an undercooked bat. Having one’s own home is a dream of every person but sometimes a crisis strikes and that dream might be hindered for a long time before coming true.
The sudden outbreak of the COVID 19 virus left us startled and undefended. The lockdown that resulted due to this pandemic and the shutting down of transport systems has impacted many industrial sectors with a heavy blow on the head. Many business people and salaried individuals have taken the effects of this pandemic and are somehow surviving under the heavy strain of cash flow and declining economy that is resulting in job losses and salary cuts. Seeing this several banking institution, both private and government, have brought out specialized loan schemes for resurfacing from the COVID-19 situation.
Most banks offer home loan top-up rates. It might seem like a good idea to take a top-up home loan to curb from the crisis but be aware, it might be more of a liability on your behalf rather than a saving factor. Before opting for a top-up home loan, you must know what it is and what its technicalities are so that you can decide whether it is a good option for you.
What Is A Top-Up Home Loan?
A home loan top-up is like taking additional credits from the bank so that you can renovate or redesign the home that you have bought or are about to buy. The maximum amount of loan and the tenure for repayment is different from bank to bank. Home loan customers can either choose to avail a home loan top-up from the same bank that they are repaying to or they can avail a top-up from another bank with a lower interest rate by transferring of balance. The State Bank of India (SBI) is offering a lower rate of interest on their home loan top-up rates compared to other banks. Where other banks are charging 7.85% of interest rate on home loan top-ups, SBI is offering top-ups at 7.6% per year. The reason why a lot of people might want to get a top-up home loan is because there are no restriction on what you use the money for. So you can simply opt for a home loan top-up and save that money for use in your business after the lockdown ends, pay your child’s tuition, or simply invest on stocks when the time is right.
Experienced people from the home loan market say that the are lower than other loan products for the individuals that have the same credit profile. Another great reason to opt for top-up home loans is that the tenure on these loans is higher than that of other loan options. This is what makes it an interesting choice for managing cash flow during the COVID-19 pandemic.
However, some experts speak against the top-up home loan idea for this pandemic. They say that application of top-up home loans is improbable as the lending party will have to evaluate the property on mortgage. You can instead choose that have a similar tenure, interest rates and features and can be applied for till June 30.
Who is Eligible for a Home Loan Top Up?
Depending on the property’s market value, repayment track record and the health of your credit score, an existing customer can easily avail a home loan top-up. Business experts say that one must show a good and regular track record of repayment of at least 9-12 months for eligibility for a home loan. This factor also varies with every institution. Some lending institutions only provide a top-up loan on properties that have been completely built and not to the ones that are under construction.
How Does a Top-Up Compare with Other Loans?
Top-up home loans may have slightly higher interest rate than actual home loans. Banks generally charge a 0.5-1 percent extra on top-up home loans. Although it has a higher interest rate than the actual home loan you took, top-ups are still a better option for borrowing as they have a much lower interest rate than what you will pay for personal loans, gold loans, and loans against property. For example, top-ups from Canara Bank start from 7.85% per annum, while the interest rates for personal loans, gold loans and loan against property are charged at 10.6%, 9.10% and 10.35% per annum respectively. Interest rates are bound to differ according to the repayment history, credit scores, etc. of the loan applicant.
Considering the tenure of a Top-up home loan, it is a better option than personal loans and gold loans. A home loan top-up rates can be extended in tenure for up to 30 years while the gold loans and personal loans have to be repaid by 3-15 years at SBI. In a top-up home loan, you can borrow up to 2 crore but the maximum you can borrow with a personal or gold loan is 20-25 lakhs.
Do a Thorough Research before Opting
Criteria, processing fees and interest rates are different in different banks. Always make sure that you compare the interest rates, processing fees and loan tenure offered by your current bank from the ones offered by other banks that you can reach out to. You can always opt to have a different loan vendor by simply transferring the balance to a different bank. But before you do that, check for the costs involved in transferring the balance and make sure that you’re not actually wasting money on it.
Experienced loan marketers say that some of the banks do not differ between loan against property and top-up home loans and hence sell it to people at a higher interest rate. So read all the concerned documents and conditions properly before finalizing your loan.
Although home loan top-up might be a good option for managing funds but you should try your best to avoid any kind of additional loans on your account in these times of peril and economic downfall. Because having a little less is better than having a load of liabilities on your head that will start haunting you right after this virus has been taken under control.