In an interview with MintGenie, Kathuria said that the repayment period for top-up home loans usually goes up to 15 years, with some lenders offering loan tenures of 20 or even 30 years.
Edited Excerpts:
Q. Can you summarize how top-up home loans work for existing borrowers? How do they differ from traditional home loans, and what benefits do they offer?
For existing borrowers, a top-up loan provides the opportunity to obtain additional funds on top of your existing home loan, serving as a valuable resource during times of necessity. These funds can be utilized for diverse purposes, spanning from home renovations and registration fees to purchasing furniture.
A loan top-up can help borrowers get extra funds. This can be particularly helpful if your existing loan has a good repayment history, potentially unlocking higher borrowing limits. Compared to other unsecured loans like credit cards, top-ups often boast lower interest rates. Applying for a top-up is typically easy, especially with your existing lender. The process is often streamlined, with minimal paperwork and quicker approval times compared to a fresh loan application.
Q. How does this type of loan complement existing home loans, and what advantages does it offer to borrowers?
A loan top-up is an additional loan amount that a borrower can obtain in addition to their current house loan. For top-up loans, no additional security is required as top-up loans are sanctioned on existing housing loans. Also, it helps in extending the overall loan tenure. Existing borrowers can fulfill Various requirements: Top-up loans can be utilized for a variety of purposes. This can include meeting expenses for a wedding, education, business, house renovation/construction, and so on.
Interest rates are typically lower compared to those of personal or home loans. This financing option can cater to diverse needs ranging from construction expenses to renovation and extension projects. Depending on the bank, funds can be utilized for personal or business purposes. Tax benefits may apply if the funds are strictly allocated to home construction or renovation. Moreover, this option often offers a quicker loan process and faster disbursal of funds.
Q. What factors influence the tenure of a top-up home loan and its impact on interest costs? Any strategies to minimize total interest paid?
Top-up home loans offer repayment durations comparable to your initial home loan. Borrowers have the flexibility to align the repayment period of the top-up loan with the remaining tenure of their initial home loan. The repayment period for top-up home loans usually goes up to 15 years, with some lenders offering loan tenures of 20 or even 30 years. The loan tenures for top-up home loans are usually higher than personal loans, which enables borrowers to select longer repayment periods for paying off their loans. Another important factor is the tenure of your current loan amount, as the top loan is given based on the outstanding loan amount and current tenure.
The interest rate attached to your home loan will significantly impact the overall amount paid over the loan’s duration. A higher interest rate translates to increased interest expenses over time. Consequently, opting for a shorter tenor can help mitigate interest costs and save money in the long run.
Strategies to reduce the total interest paid:
- Increase the EMI amount – By opting for a higher EMI, you expedite the repayment of the principal amount, thereby diminishing the interest accrued amount, subsequently decreasing the EMI.
- Shorter loan tenure – The length of time you select for loan repayment also influences the interest rate. Opting for longer durations may result in higher rates since the lender’s risk is prolonged over a greater period, so choosing a shorter loan tenure is advisable.
- Choose a lender with lower ROI – Always opt for a lender that offers a lower interest rate on your home loan. If your current home loan interest rate is higher than the prevailing market rate, consider transferring your balance to a lender offering a lower interest rate.
Q. In the current financial landscape, how do top-up home loans compare in terms of affordability and cost-effectiveness? Are they generally considered a more inexpensive form of debt compared to other borrowing options available to homeowners?
Top-up home loans are one of the most cost-effective and affordable borrowing choices for individuals with existing home loans. Yes, they are considered a more inexpensive form of debt compared to other borrowing options and are typically secured by collateral, the interest rates on top-up home loans are typically lower than those on unsecured loans like personal loans or credit cards.
Q. When considering the tenure of a top-up home loan, what factors should borrowers take into account, and how do these decisions impact the overall interest cost? Does the structure of Easiloan’s top-up home loans offer flexibility in terms of repayment periods to accommodate varying borrower needs?
Top-up home loans provide repayment durations similar to your initial home loan, granting borrowers the flexibility to synchronize the repayment period of the top-up loan with the remaining tenure of their initial home loan. This facilitates borrowers in choosing extended repayment periods to settle their loans. Another crucial aspect is the tenure of your existing loan amount, as the top-up loan is granted based on the outstanding loan amount & current tenure.
The interest rate associated with your home loan significantly influences the total amount paid throughout the loan’s duration. A higher interest rate leads to increased interest expenses over time. Hence, opting for a shorter tenor can effectively reduce interest costs and lead to long-term savings.
Your ability to manage EMIs is key in choosing a loan term. Income dictates monthly affordability; higher income and lower expenses may support a shorter term with higher EMIs. Additionally, a good credit score is vital for loan approval. Lenders assess your credit score, reflecting your repayment history, to determine interest rates and terms.
The flexibility of Easiloan’s top-up home loan is determined by the existing home loan. Depending on the outstanding amount and tenure of the current home loan, borrowers are offered flexibility in repayment periods.
Q. There’s often a debate surrounding whether borrowers should aim to repay top-up home loans quickly or adopt a more gradual repayment approach to avoid overleveraging. From Easiloan’s perspective, what advice or guidance would you offer to borrowers navigating this decision?
Top-up home loans should be repaid quickly and should exercise caution to avoid overleveraging. Top-up loans should be opted for in case an extra amount is needed to fund other purposes such as renovation purposes, otherwise, it should be avoided. Taking a top loan overall extends the loan tenure, which increases the burden of paying EMIs for an extended period. A potential drawback of these loans may arise if the borrower opts for an extended repayment period for the top-up loan. They are choosing a personal loan with a higher interest rate and repaying it within two years results in paying less compared to opting for a top-up loan, which extends over a longer period.
Q. Are there any specific risk factors or benefits associated with each approach? Besides top-up home loans, are there any other types of financing options or loan products that borrowers might consider in conjunction with or instead of a top-up loan to meet their financial needs?
Risks: When a borrower opts for a loan top-up, they are essentially borrowing additional funds on top of their existing loan amount. This results in an increase in the total borrowed amount. A risk associated with loan top-ups is the potential for a longer repayment period. While this may reduce monthly payment amounts, it could result in higher total interest paid over the life of the loan, necessitating careful consideration. The longer your loan term is, the higher the cost you pay. Topping up a loan may affect the borrower’s credit score. Managing increased debt levels and meeting repayment obligations is essential to prevent any adverse effects on creditworthiness.
Benefits: A loan top-up can help borrowers get extra funds. This can be particularly helpful if your existing loan has a good repayment history, potentially unlocking higher borrowing limits. Compared to other unsecured loans like credit cards, top-ups often boast lower interest rates. Applying for a top-up is typically easy, especially with your existing lender. The process is often streamlined, with minimal paperwork and quicker approval times compared to a fresh loan application.
Borrowers can explore alternative secured loan options like a loan against property or a gold loan and a personal loan in terms of unsecured loan can also be considered. But, caution should be exercised while opting for a personal loan as the interest rate is on the higher side.
Q. What’s your advice on repaying top-up home loans: quickly to avoid overleveraging or gradually? Any recommendations for borrowers? Are there other loan options besides top-up home loans that borrowers could consider? How do these alternatives compare in terms of eligibility, interest rates, and suitability?
It’s advisable to repay top-up home loans promptly and exercise caution to prevent overleveraging. If you don’t have an existing home loan, exploring alternative secured loan options like a loan against property or a gold loan can be worthwhile.
Gold loan interest rates typically remain fixed, unlike Loan Against Property (LAP) interest rates, which can be offered as either fixed or floating. Due to the volatility of the gold market, gold loan interest rates tend to be higher compared to LAP interest rates.
The eligibility parameters for gold loans are much simpler than those for unsecured loans. Nevertheless, one must prove ownership of the pledged gold through valid receipts. The Loan Against Property eligibility requirements are more extensive than gold loans. The general eligibility criteria include an applicant’s age, income, property value, nature of employment, existing debts, credit score, and history, etc. Further, the pledged property should be registered under the applicant’s name without any ongoing mortgages or litigations.
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Published: 13 May 2024, 09:11 AM IST