The home loan balance transfer facility has long been a popular financing option to switch lenders and reduce the EMI burden by leveraging lower interest rates. However, a new approach is gaining quick traction: combining the home loan balance transfer with a top-up loan facility.
This allows you to enjoy the dual advantage of lowering your EMIs while securing additional funds for home renovation or any other purpose.
As its name suggests, this is a financial facility that allows you to borrow additional funds over and above your existing home loan. Your existing lender generally offers it by taking into account your credit score and the repayment record of your existing loan.
When switching lenders too, certain banks and non-banking financial companies (NBFCs) offer balance transfer and top-up loan facilities together.
A home loan requires a long commitment, and your financial situation may evolve during this time. This is where a home loan balance transfer facility proves to be a strategic option, as it offers the following benefits:
Most significantly, this facility enables you to lower your EMI burden by switching to a lender that offers more attractive interest rates. It is worth noting that even a slight reduction in interest rates can translate into big savings ranging up to lakhs over the loan duration.
By opting for the balance transfer facility, you can’t just lower your EMIs but also select a lender that extends better terms and services. This may include a favourable repayment plan, a top-up facility, lower prepayment or foreclosure charges, or even better customer service.
As a homeowner with an existing loan, you may require additional funds for certain house-related requirements. In such a situation, a top-up home loan offers the following benefits:
Unlike home loans, top-up loans are not rigid in how you can use the available funds, allowing you to use them even for non-property-related expenses. Hence, when opting for a home loan transfer with a top-up facility, you can use the additional funds for various purposes. These may include home renovation, medical emergency, your child’s education, or debt consolidation.
Top-up home loans generally have lower interest rates as compared to personal loans. While the interest rates for the former usually range between 8% and 10% p.a., the interest rates for personal loans may range between 12% and 18% p.a. This makes them a cost-effective solution.
As a homeowner, effectively managing your finances is crucial for long-term stability. Opting for a home loan balance transfer plus top-up can be incredibly advantageous in the following situations:
This hybrid option is perfect when:
By transferring your loan to a new lender offering lower interest rates, you can reduce your monthly EMI. Simultaneously, you can secure a top-up loan at a highly competitive rate. This can make both your existing and new financial commitments more manageable.
Your creditworthiness is a dynamic aspect of your financial profile. Your credit score can significantly improve since you first took out your home loan due to diligent repayment history, increased income, or clearing other debts.
In this case, you may now be eligible for better loan terms than your current ones. A higher credit score makes you a more attractive borrower to new lenders, opening doors to lower interest rates on your transferred home loan. This even increases your chances of approval for a substantial top-up loan.
Check out the general eligibility terms and documents required for balance transfer and top-up home loan:
Eligibility Criteria
Required Documents
Here is a list of general documents you need to submit when opting for a home loan balance transfer with a top-up loan:
While each of these serves a distinct purpose, understanding their fundamental differences is crucial for making an informed decision that aligns with your financial goals. Check out their differences below:
| Feature | Balance Transfer | Top-Up Loan | Combined Option |
|---|---|---|---|
| Purpose | Switch lender | Borrow more using the same collateral | Does both: Switch lender + get additional funds |
| Benefit | Lower interest rate, better service | Extra funds at low interest | Full advantage of rate + extra funds |
| Processing Time | Moderate | Fast if with the same lender | Slightly longer (if with a new lender) |
Going for a home loan balance transfer with a top-up combines the processes of refinancing your existing loan and getting additional funds. Here is a step-by-step process to follow to apply for this combined facility:
Deciding whether a home loan balance transfer combined with a top-up is the right financial move requires careful consideration of your circumstances. This facility can lower your EMI burden and provide much-needed liquidity for significant expenses.
This makes it particularly attractive if you've seen an improvement in your credit profile or if current interest rates are significantly lower than your existing loan. However, remember to conduct a thorough cost-benefit analysis, factoring in all associated charges from both your old and new lenders.
Ensure that the potential savings from a lower interest rate genuinely outweigh the processing fees, legal costs, and any other expenses involved in the transfer.
1. What is the maximum top-up amount I can get during a balance transfer?
Each lender sets its own maximum top-up amount based on their policies and the borrower's eligibility. Lenders often consider the LTV ratio of the property and the borrower's repayment capacity when determining the top-up amount.
2. How is the interest rate determined for the top-up loan?
The interest rate for a top-up loan on a home loan is typically determined by several factors. These include the borrower's credit score, repayment history, the outstanding balance of the original home loan, the LTV ratio of the property, and the lender's internal policies.
Generally, top-up loan interest rates are slightly higher than primary home loan rates but remain significantly lower than personal loan rates.
3. What is the rule for top-up loans?
Top-up loans allow existing home loan borrowers to get additional funds against their mortgaged property. Key rules include:
4. Can I get a top-up on a transferred home loan?
Yes, many lenders offer a top-up loan with a home loan balance transfer facility. To be eligible, you need to qualify as per the requirements set out by the lender.
5. Is it good to take a top-up on a home loan?
Taking a top-up loan on your home loan can be a good idea for various financial needs like renovations, education, or medical emergencies. It offers lower interest rates than personal loans, longer repayment tenures, and quicker processing since your property is already mortgaged. However, ensure the added EMI fits your budget and consider the long-term interest cost.
