Home loan top-up: Interest rates, eligibility, tax benefits

A top-up loan on a home loan is the surplus amount you borrow in addition to your existing home loan. It is a secured loan, but no additional security is required. There are no restrictions on end-use. You can use the funds to renovate or build a house, or to cover medical emergencies, wedding expenses, higher education, or travel plans. Home loan top-up interest rate is significantly lower than other unsecured alternatives like personal loans. There are also tax benefits under Section 24(b) and Section 80C of the Income Tax Act.

A home loan top-up offers lower interest rates, minimal documentation, quick processing, and tax benefits. Fund utilization is also flexible, including home renovations, medical emergencies, or debt consolidation.

There are several tax benefits associated with regular home loans. The principal repayment as per section 80C of the Income Tax Act and the interest paid under section 24 of the Income Tax Act can both be deducted up to Rs 1.5 lakh in a single financial year. One can claim home loan top-up benefits if one has topped up their home loan.

Is a home loan eligible for tax exemption? Yes, and who would not love a home loan top-up eligible for tax exemption?

Do you know what the home loan top-up eligibility criteria are? Those who wish to renovate or repair their homes can take a top-up loan (typically 15-20 years) to cover the cost of the renovation or repair. They can claim a tax benefit on top-up loans if they understand what they are and how they work.

Let us explain how a home loan top-up is eligible for tax exemption.

What is a home loan top-up?

A top-up loan is a loan added on top of an existing loan. Home loans and personal loans are the most common types of such loans.

A customer with a high credit score and a good repayment capacity has a top score. This is a financial instrument that serves as a personal loan for expenses like paying for children’s education, furnishing a home, or unforeseen emergencies. Such customers meet the criteria for a home loan top-up eligibility.

Let’s discuss the home loan top-up interest rates now.

What are the home loan top-up interest rates in India?

In India, home loan top-up interest rates are usually linked to your existing home loan. They vary by bank, but the typical range is between 8.05% and 10.55%. If your repayment record is positive, you may get a competitive interest rate. In most cases, the rate is slightly higher than your home loan interest rate but lower than many personal loans. Tata Capital offers some of the country’s lowest home loan top-up interest rates, starting at 8.60%.

The interest rates for a top-up loan on a home loan are impacted by several key factors. These include:

1. Credit score: A higher score can help you get a lower rate.
2. Repayment history: If you make timely EMI payments, your chances of approval increase.
3. Income: A stable and higher income may lead to better rates and loan terms.
4. Loan amount and tenure: Larger loan amounts or longer tenures may affect pricing.
5. Lender’s policies: Each lender has its own eligibility and interest rate criteria.

What are the features and benefits of availing of a housing loan top-up?

Here are the various features and benefits of availing a top-up loan

• Multipurpose: Top-up loans do not restrict the end use of funds. These multipurpose loans can be used to fulfill financial needs such as education expenses, medical bills, home renovation, wedding costs, and more. For instance, you can use the loan to fund your daughter’s education instead of taking a separate education loan.
• Quick processing: Since top-up loans do not involve additional document verification or credit checks, you can enjoy quick approval and processing without any hassles. Suppose you need urgent funds for your father’s surgery. A top-up loan on a home loan is processed and disbursed within a few hours to a few days. This makes it the ideal choice for emergencies.
• High loan amount: With a top-up loan, you can access high loan amounts to meet all your financial needs. The amount is determined based on your property’s value, outstanding home loan, and repayment capacity. For instance, you can take a top-up loan of Rs. 15 lakh and use it to renovate your house or purchase new furniture.
• Tax savings: If the top-up loan is taken to purchase or construct a new property, the interest paid on the loan is eligible for tax deductions, subject to the limit under sections 80C and 24(b) of the ITA. So, if you renovated your house using Rs. 20 lakh from a top-up home loan, you are eligible for tax benefits on the principal amount and interest paid during the financial year under Section 80C and Section 24(b), respectively.
• Lower interest rates: Top-up loans generally have lower interest rates than unsecured loans like personal loans. So, instead of opting for a personal loan at a higher rate, you may opt for a top-up loan and reduce your borrowing cost.
• Longer repayment tenure: Most lenders allow you to repay the top-up loan over a longer tenure, making EMIs more affordable. For instance, Tata Capital offers a loan tenure of up to 30 years on a top-up loan on a home loan.
• No additional collateral: You usually do not need to pledge another asset, as the same property securing your existing home loan acts as collateral. So, if you need funds to expand your business, but do not have another property to mortgage, you can avail of a top-up loan on your existing home loan.

What are the home loan top-up eligibility criteria?

If you’re planning to apply for a home loan top-up, here are the standard eligibility criteria to consider:

1. The applicant must be between 21 years and 65 years
2. Both NRIs and Indian applicants can apply
3. Salaried and self-employed individuals can apply
4. There shouldn’t be any outstanding dues or EMI defaults in the home loan repayment history
5. The applicant must have a credit score of 750 or above

What are the documents required for a top-up loan?

The documents required for a top-up loan vary by applicant type. The following list categorizes the document requirements to apply for a home loan top-up for salaried and self-employed individuals.

For salaried employees

1. Age proof (A copy of your passport, driving license, birth certificate, life insurance policy, or school leaving certificate)
2. Photo ID proof (A copy of your voter ID card, passport, PAN card, or Aadhaar card)
3. Address proof (A copy of a utility bill, property registration documents, property tax receipt, bank statement, or Voter ID)
4. Income proof (A copy of your salary slips for the last three months, salary bank account statements for the last 12 months, appointment letter, or a certified copy of Form 16)
5. Existing loan details (Through bank statements or loan statements)
6. Processing fee cheque (To be issued from your salary account)

For self-employed individuals

1. Age proof (A copy of your passport, driving license, birth certificate, life insurance policy, or school leaving certificate)
2. Photo ID proof (A copy of your voter ID card, passport, PAN card, or Aadhaar card)
3. Address proof (A copy of a utility bill, property registration documents, property tax receipt, bank statement, or Voter ID)
4. Business proof (A copy of the IT returns for the last two years, business registration certificate, or your business profile on a letterhead)
5. Income proof (A copy of the last two years’ P/L projection statements, bank statements for the last 12 months, and operative current account statements for the last 12 months)
6. Existing loan details (Through bank statements or loan statements)
7. Processing fee cheque (To be issued from your business account)

What are the fees and charges for a home loan top-up?

Most lenders offer home loan top-ups at competitive interest rates with nominal additional charges such as processing fees, delayed EMI penalties, or foreclosure charges. Since these charges can vary from one lender to another, you must contact your lender to know about the additional charges and use an online EMI calculator to determine the monthly payments.

What are the features of a top-up home loan interest eligible for tax exemption?

The features of a home loan top-up eligible for tax exemption are:

1. Longer-term: It’s easier to repay a top-up loan than a personal loan with a repayment period of 20 years.
2. One gets a top-up loan on home loan interest rates: House loans are more affordable than personal loans due to their lower interest rates. Due to these circumstances, it is preferable to get top-up loans on home loan interest rates in an emergency.
3. Bigger loan money: By topping up, one can get a loan of up to Rs. 50 lakhs from the banking institution. Nevertheless, the bank’s policy limitations must be adhered to in terms of the top-up loan and the outstanding house loan amount.
4. No need for security: Top-up loans are secured in addition to existing home loans, so additional security is not required.
5. Fulfills different needs: In addition to meeting wedding expenses, top-up loans can also be used for education, business, home renovations, and construction.
6. Rapid processing: Because no additional background check or documentation is required, obtaining a top-up loan takes little time.
7. Tax exemption on interest under Section 24(b): Top-up home loans used for buying, constructing, repairing, renovating, or reconstructing a residential property qualify for a tax deduction of up to Rs. 30,000 on interest paid under Section 24(b). Make sure you have all supporting documents to claim the deduction.
8. Tax exemption on principal repayment under Section 80C: If the funds are used for purchasing a new house or residential property construction, you can claim up to Rs. 1.5 lakh on the principal amount. However, all conditions must be met, and you must be filing returns under the old tax regime.

How to apply for a top-up loan with Tata Capital?

Tata Capital offers quick top-up loans at competitive interest rates. Here’s how you can apply-

1. Visit our website, give us a call, or contact us via WhatsApp to get started with the top-up loan application process
2. Provide your personal, employment, and financial details.
3. Check your loan eligibility and home loan top-up interest rate.
4. Provide your home loan top-up amount details.
5. Submit details of your existing home loan.
6. Submit the necessary documents and fees.

Conclusion

Borrowers must provide recent bank statements, income proof, and CIBIL scores to apply for a top-up house loan. To expedite the approval process, one should submit them as soon as possible after receiving them. But the best part is that a home loan top-up is eligible for tax exemption. It may be necessary to provide basic KYC and property-related documentation if one wishes to transfer a balance or top up their house loan.

Now that one knows that a home loan top-up is eligible for tax exemption, one should be able to take advantage of all the perks that come with a top-up house loan. In addition to being a hassle-free top-up home loan disbursal service, Tata Capital also offers a relatively low processing fee, and the interest rate on the top-up loan is similar to the home loan interest rate.