Are you planning to buy a house of your own? Confused between Home Loan and home Top-up Loan? We will help you decide which is best for you.
Home Loan is a loan applied for by an individual to buy or construct one’ own house on a piece of land.
What is Home Top-up Loan?
Top-up Loan is an extension to the existing Home Loan of an individual. If an individual pays off the loan amount regularly, he can avail a Top Up Loan if he/she requires.
Difference between Home Loan and Home Top-up Loan
Home Loan and Home Loan top-up sound quite similar by the name. But there is certainly a thin line of difference between the two. Let us help you to know the difference between the two with the help of the below mentioned points:
- Purpose
You can take a Home Loan for the purpose of buying or constructing a house. A Home Loan can only be used for residential purpose. Whereas, a Top-up Loan can be used for all purposes. You can use it for a residential, commercial or industrial purpose.
- Tenure
The tenure of a Home Loan is generally 5-20 years with some banks allowing up to 25 years. On the other hand, you can take a Top-up Loan only for the remaining tenure of your Home Loan. For example, if you have a Home Loan of 25 years and you have been paying it off since the last 20 years, then you can get a Top-up Loan for only 5 years.
- Documentation
While applying for a House Loan, you need to provide all the required Home Loan documents to the bank or financial institution. Only after verification of the documents, the bank will approve your loan. While applying for a Top-up Loan, no documentation is required as the bank already have the required documents from your Home Loan. The only document you need to submit is your bank statement to show that you have been repaying the existing loan at the stated time intervals.
- Interest Rate
The interest rate on a Top-up Loan is generally 1-2% higher as compared to Home Loan rates. Hence, the repayment cost is a bit higher when compared to the existing Home Loan.
- Tax Benefits
The tax benefit is quite restricted on Top-up Loan as compared to Home Loan. In case of Home Loan, both the principal and the interest amount is eligible for a tax deduction. But in case of Top-up Loan, you can avail the loan amount for a tax deduction only if you use the amount for home renovation, extension or for education purpose for your child.
The Bottom Line
Taking a Home Loan is one of the steps that take you closer to your dream of building your own house. But a Top Up Loan takes you close to making it better in the future through extension and renovation. Hence, both the loan types are different and important in their own ways.