Construction Loans
Introduction
A top up loan is an addition to an existing home loan. It is a facility wherein additional funds are provided to a bank customer who has a running home loan facility with the bank. Unlike home loan where the bank monitors the end use of the funds, in top up loan the end use of the funds are not monitored. The customer can use the funds for any purpose like funding his personal needs or for meeting marriage expenses etc. It is just like a personal loan where there is no restriction on fund usage. However, it is to be noted that grant of top up loan facility is at sole discretion of the Bank and the customer should have strong repayment history for his existing home loan.
Product Features
- To avail the top up loan facility, the customer needs to have an existing home loan with the bank and mostly a repayment history of more than 6 months for his existing home loan account.
- Top up loan tenor is governed by the outstanding tenor of the existing home loan. E.g.: If the outstanding tenor on the exiting home loan is 6 years, than the top up loan can be granted only for a maximum period of 5 years.
- The interest charged on the top up loan is similar to the interest charged on the existing home loan facility or sometimes it is levied at a higher interest rate.
Top up Loan Amount Determination
- The bank considers the market value of the property for determining the amount of the top up loan. The market value of property is the main consideration since property acts as the security against the top up loan.
- The bank also considers the repayment history of the customer to determine the customer’s intention to repay the loan. Therefore, to avail the top up loan, the customer should have minimum 6 months repayment history of the existing home loan. The bank will also check the credit score and history just to ensure that the repayment capacity and credit score has not changed since the disbursement of the original home loan.
- The bank ensures that the total outstanding against the property should not be more than seventy per cent of the latest property value. Hence, outstanding home loan is also considered to determine the eligibility of the customer. E.g.: If the property value is INR 100,000 and outstanding home loan amount is INR 50,000 than the customer can avail a maximum top up loan amount of INR 20,000, if the bank maintains that only seventy percent of the property value can be granted as loan.
Benefits
The top up loan acts similar to a personal loan and has no restriction on the end usage of funds. Tax exemption on interest amount is available on the top up loan. If the customer uses the funds for housing renovation/construction or any allied activity, then he can also avail the tax exemption for the principal amount of the loan
