Top Up Loan - Explained - YouTube

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Namashkar, my name is Mukul and welcome to Asset Yogi

Where we unlock the knowledge of finance rather locking it

In this video, we are going to discuss about the Top Up Loan

If you borrowed a home loan and you have already paid some of its principal

Let's say it's been 3-4 years since you borrowed it

So your home loan eligibility and income level might have increased

Because of this, your loan eligibility increases

Let's say after 3-4 years, you experience any personal expense, medical emergency, a requirement for education loan,

a car loan, or any other personal loan

Then it's better to take a top-up loan on your current home loan

The interest rate of the top-up loan is a little bit more than a home loan but it's much cheaper than the other loans

So in this video, we'll see how you can borrow a top-up loan and what is its eligibility

And what are the benefits of top up loan apart from the ones which I already told you

How you can apply for a top up loan in the same bank from where you took a home loan

Or how you can transfer a loan in any other bank

We'll discuss all these in detail

Stay tuned with this video till the end

So that you don't miss any important point

Let's switch on the blackboard

First of all, let's understand what is a top up loan

If I talk about its definition, it is an additional loan that you can borrow over and above your outstanding home loan

What does it mean?

Let's say you have some requirements and you need extra money for personal use

And let's say you want to borrow a personal loan

So instead of borrowing a personal loan, you should check if you've already done some repayment and your income level is increased

Then it's better to borrow a top up loan

And because the interest of a personal loan is high, you shouldn't opt for it

and you can take a top up loan

It's better and we'll see its advantages and how its calculation is done

So if we talk about the eligibility for top up loan, it depends on 4 aspects

1. How much is your current property value

2. Your current income or age

3. How much is the outstanding loan amount

4. What is your repayment capacity

Repayment capacity means if there are some other EMI's going on

Let's say credit card debt, personal loan, car loan

So your eligibility also depends on the EMI's of your total loans

Let's understand this through an example

Let's say you bought a property worth Rs 50 lakhs in today's date

And let's say you took a home loan on it

Let me write here

You took a home loan of Rs 40 lakhs. You got up to 80%

So if you took a home loan of Rs 40 lakhs then most likely your income level

should be more than Rs 80,000 then only you'll get Rs 40 lakhs loan

So I am assuming an income level of Rs 80,000 per month

Now lets say after 5 years

The property value becomes Rs 70 lakhs

After 5 years, it became Rs 70 lakhs and you prepaid the home loan

After the EMI payment and prepayment, maybe the home loan amount after 5 years remain Rs 30 lakhs

With that, maybe your income level increased to Rs 1,20,000 per month

So let me write Rs Rs 1,20,000

Let's say you want a personal loan for home improvement, any medical emergency,

Or you want to fund your child's education

Then maybe you require Rs 15-20 lakhs

For that, you can take a top-up loan

The amount of top-up loan you'll get will depend on your property value

You can get a maximum loan of 75% of the property value

So your loan eligibility will be calculated according to 75% of Rs 70 lakhs

So you can get a maximum loan of Rs 52.5 lakhs

Out of that, Rs 30 lakhs outstanding loan is already there

So the total top-up loan you'll get will be 52.5 - 30,

So can get a Rs 22.5 lakhs top-up loan and that's your eligibility

So this was the eligibility for top-up

With that, what will be the tenure?

Let's say you took this loan for 20 years

5 years are already passed so the remaining time is 15 years

So now you'll get this loan for up to 15 years

And the total EMI for it

The total EMI

will be around Rs 50,000

If we'll calculate according to Rs 52.5 lakhs, then the EMI will be of Rs 50,000

And you can roughly take a composition of Rs 28-29 thousand from Rs 30 lakhs

And the balance EMI for home loan will be

EMI of Rs 20-21 thousand

So in this way, the eligibility of the top-up loan is calculated but

It depends on several other factors

Total EMI of Rs 50,000 means your total income level should be at least Rs 1 lakh per month

So we already assumed that it is more than Rs 1 lakh per month so you can easily get a top-up loan of Rs 22.5 lakhs

Now let's see other conditions of the top-up loan as well

Firstly, the interest rate is little more than that of a home loan

It can be 0.1-0.5% more

So let's say your home loan was at 8.3%

So now, you may get the top-up loan at 8.5%

I am writing here

So you may get the top-up loan at 8.5%

But you may get a personal loan at 12-13%

So obviously, it is a much better deal

If you're getting it at 8.5% and you can do all your personal loan works with it then it's always better.

After that, when 12 months of your home loan servicing are completed, then only you can apply for a top-up loan

After that, we already discussed about the maximum loan that

You get a maximum loan of 75% of the current property value

Subject to other eligibility conditions

So we discussed about the other eligibility conditions

We already discussed about the property level, how much is your current income level, age

If your age is 50+, you might not get a top-up loan easily

Or its tenure may be less, right!

Also, it depends on your outstanding loan amount. Here it was Rs 30 lakhs

How much is the repayment capacity? Here we assumed that there's no ongoing EMI

Let's say you are paying one more personal loan EMI of Rs 10,000 per month

So your loan eligibility would be decreased accordingly

After that, when we talk about tenure, you get it for maximum of 15 years

or home loan tenure, whichever is the lowest

We saw a home loan tenure of around 15 years so you'll get it for 15 years

Let's say if your home loan tenure would be only 10 years

Then you would get a top-up loan for a maximum of 10 years

Because lesser of the 2 is considered

So the lesser of 15 years or the home loan tenure is considered

Now let's see for what all things you can use a top-up loan

So you can use a top-up loan for everything a personal loan can be used

But you cannot take it for speculative purpose

For example, you cannot do share trading with this top-up loan

You cannot do any kind of speculation or invest in any speculative investment

So what all things can you do with it?

You can take a home improvement loan

You can use it for car purchase, fund education of your children

You can use it for a medical emergency, for the marriage of your children

You can pay due payments of credit cards, can use for business expansion

So as we discussed, you can use it for any purpose other than the speculative purpose

So what are its advantages?

Firstly, you get a loan for a longer tenure

Generally, if you would take a personal loan, car loan, or education loan

You get a maximum tenure of 3-7 years

So if you take a top-up loan, you get a tenure of up to 15 years

So it is always better because your EMI and interest rate both are less

That's why a lower interest rate is a big advantage of top-up loan

A personal loan, car loan, or education loan would be costly

Top up loan will be cheaper than all these because

Its interest rate is little more than a home loan

After that, EMI is less because the interest rate is less and tenure is increased

You're getting it for 15 years and the interest rate is also less so EMI will be less

After that, approvals are fast because the bank has already done most of the documentation

So documentation required is also less and approval is also fast

Then comes the last benefit which is your tax benefit

You'll not get tax benefits in all the cases

If you're taking a loan for home improvement or an additional home loan because of an increased requirement

In these cases, you get tax benefits

So it depends on the purpose for which you are using it and according to that you can claim tax benefits

So finally, let's see how should you take a top-up loan

So you have 2 options

1. You can apply to the same bank from where you took a home loan

If they give the lowest interest rate then its best

So you should negotiate for the lowest interest rate and ask them to give a loan on the interest rate that they are charging to their new customers

You can negotiate for processing fee as well

2. If the same bank is not providing the best interest rate and if you're getting a better interest rate in the market

Then you can shift the whole loan even the home loan amount

As we saw that Rs 30 lakhs loan was outstanding

30 lakhs + additional 22.5 lakhs, so you can transfer Rs 53.5 lakhs loan as well

You have 2 benefits in that.

1. Interest rate of your current home loan will be reduced

2. and you'll get the best interest rate on your top-up loan as well

Because there is a competition and new customers always get a better interest rate

So I think I covered all the major points on the top-up loan

And I hope now you'll use a top-up loan instead of a personal loan

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Or if you have any questions, then you can comment down below

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