Shubham Kumar, an information technology professional, has been employed by a multinational corporation for the past eight years. Thanks to his increased salary each year, he has been comfortably servicing a home loan for 5 years, with timely EMI payments. His wife recently insisted that he gets the home repaired by taking out a loan to do so. She advised him to take out a personal loan or a gold loan in order to raise additional funds. Instead of looking for alternative sources of funding, Shubham’s financial advisor recommended that he consider a top-up ICICI Home Loan. Is this the best course of action? Let us deep dive to know.
What exactly is a housing loan top-up?
Existing ICICI Home Loan borrowers who require more funds might finance their requirements by obtaining a top-up loan. This type of loan is issued in addition to your existing housing loan and is known as a top-up loan. The cash obtained can be utilised for a variety of personal or corporate purposes, such as house renovation, further education for a child, or financing your business operations and growth.
If your present lender either rejects your request for a loan top-up, tells you to increase the ICICI Home Loan Interest rates for a top-up, or does not offer this option, you may want to explore transferring your home loan balance to a different lender. Make it certain that the new lender will give you the necessary top-up loan amount before moving.
Who are the people who are eligible for it?
ICICI Home Loan borrowers who have paid a minimum number of instalments (EMIs) and made regular and consistent repayments in the past are more likely to be awarded a top-up loan opportunity. Few lenders will issue top-up loans for residential homes that have already been completed rather than for houses that are still under development. Aside from that, some lenders provide a top-up loan option to home loan borrowers who have transferred their existing home loans to them from a different lending institution for the purpose of top-up and availing of low ICICI Home Loan Interest rates.
Now, let’s compare the performance of a house loan top-up with alternative loan choices such as a personal loan, a loan against a credit card, or a gold loan:
Loan tenure- The duration of top-up loans is primarily determined by the remaining term of the borrower’s existing house loan, with additional considerations such as the customer’s credit profile and previous debt commitments also taken into consideration. The maximum loan tenure, on the other hand, maybe as long as 20 years. A longer payback period facilitates the acquisition of larger loan amounts, which cannot exceed the loan-to-value (LTV) ratio set by the lending institution. Considering that the maximum loan tenures of other loan alternatives such as personal loans are 5 years and that gold loans are up to 3 years, top-up home loans clearly outperform other options in terms of the lengthier loan tenures that are available.
Another factor that distinguishes top-up loans from other loan choices is the ICICI Home Loan Interest rates that are being given. With house loan rates as low as 8.35 percent p.a. being offered, the interest rates on top-up loans are typically 0.5-1 percent higher than these low rates. Even in this case, however, the interest rates on top-up loans are lower than those on other types of loans. For example, the interest rates on personal loans typically range between 10.5 and 24 percent, whilst the interest rates on gold loans may range between 9 and 26 percent mostly.
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Taking advantage of top up’s low-interest rates, existing house loan borrowers can use top-up loans to obtain the most amount that they are eligible for. Furthermore, top-up loans can be utilised for debt consolidation by paying off other loans with higher interest rates that are already being serviced.
Processing time- On the basis of loan processing time, other loan choices such as personal loans, loans against credit cards, and gold loans outperform top-up loans in the marketplace. Instant credit alternatives include personal loans that are disbursed within 1-2 days, gold loans that are disbursed within a few minutes, and credit card loans that are disbursed within a day or less. It normally takes a week or more to process and disburse top-up loans because they require the evaluation of the property as well, after which the loan amount is finalised according to the LTV ratio that has been established.
LTV Ratio and Loan Amount- The amount of an ICICI Home Loan top-up is normally determined by the loan to value (LTV) ratio set by the lender. Generally, the loan-to-value (LTV) ratio offered does not exceed 75 percent of the property’s current market value. Other loan alternatives, such as personal loans (up to 40 lakh rupees) and gold loans (up to 10 crore rupees), may have larger maximum loan amounts than the top-up loan option.
Tax benefits-According to the Income Tax Act, the interest and principal repaid on personal loans, gold loans, and loans against credit cards are not eligible for any tax benefits. Top-up loans, on the other hand, may be eligible for tax benefits on both the interest and the principal payments, depending on how the funds are ultimately used. When the funds are utilised for repairs, home renovations, or other alterations to the property, the interest paid at applicable ICICI Home Loan Interest rates is eligible for a deduction under Section 24b of the Income-tax act. If the loan proceeds are utilised for the building or acquisition of a new property, the principal and interest repaid are eligible for tax deductions under Sections 80C and 24b of the Income-tax act., respectively. However, if the funds from the top-up loan are used to pay for schooling, the tax deduction for interest paid on education loans, which is otherwise available under Section 80E, is not accessible.