Suppose you have home loan since few years and currently you are looking at upgrading your home furnish then what will be the best option which may run into 5 lakhs to 10 lakhs? Easier option in such situation will be to go for Home Equity Loan or Top-Up Loans. But let us first look at when one can opt such type of loans.
Hope Equity Loan or Top-Up Loans are similar in nature. Such type of loans are available only to the existing customers. Suppose 5 years back you took home loan of around Rs.50,00,000. Currently your property value increased and at the same time your outstanding home loan decreased, in that case you can go for home equity loan or top-up loans.
But what you mean by home equity in such type of loans? Home equity is the difference in your current value of property and current outstanding loan on this property. Suppose your property current value is Rs.1,00,00,000 and you took Rs.50,00,000 loan 5 years back but current outstanding is Rs.45,00,000. Then home equity is Rs.55,00,000. You are eligible to take loan on another Rs.55,00,000 value of your property. Usually in such situation banks will maintain their loan amount to 60% to 70% of your property. So even though property value increased drastically but still you will not receive the whole appreciated value of your property as loan. Considering these factors your current outstanding loan is Rs.45,00,000 and current property value is Rs.1,00,00,000 as a rule you are eligible for a loan of another Rs.15,00,000 (Rs.1,00,000*60%=Rs.60,00,000-Rs.45,00,000). Also such type of loans will be available after reviewing your credit history and loan repayment capacity. So maintaining a good financial track record is a must.
But is it worth to take this blindly?
If you have no option left out to go for personal loan (short period range from 1-5 yrs) then you may chose this option. Otherwise first you may look for finance from your existing LIC policies (tenure till policy maturity), Bank FDs (till maturity) or Gold Loans (short term loan period range from 1-3 yrs). Because such type of loan is costlier than the loan on LIC policies, Bank FDs or Gold Loans, but cheaper than personal loans. Please also note that EMI will attract you to go for such loan as tenure will be longer ranging from 10-15 yrs, but deciding on loan requirement is best option.
What is the tax benefit?
It depends on the utilization of this extended loan amount. Suppose the amount is utilized for renovation or further construction of home then you avail the same benefit as of home loan. But if it is used for any other purpose then you are not eligible for any tax benefit.
which Banks are offering such type of loans?
1) SBI’s Top-Up Loan
2) ICICI Top-Up Loan
3) HDFC Top-Up Loan
1) Easy to get it than personal loan as processing is not lengthy.
2) Compare to personal loan rate of interest is lower.
3) Tenure is longer so you will not feel the heat of EMI.
4) Tax benefit if it is used for renovation or property add on.
5) Instead of pledging new property it is best to go with already pledged property.
1) As told above lower EMI may attract you to go for such loan but remember that you need to pay for long term.
2) Nothing is free, hence they will pledge your property as security.
3) Their may be certain restrictions on earlier repayment.
4) Usage is tax beneficial only used for property otherwise it is just a normal loan.
5) Eventhough it is part of your existing home loan but few banks may charge some processing fees.
6) Usually this loan will be available after completion of your existing home loan.
7) Rate of interest may be higher compare to other forms of loans like loan on insurance policies or Bank FDs.
Note-Loan in any form is always a bad to one’s financial life. Hence consider the need and if it really need then go ahead otherwise strictly avoid it.