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All About Top-Up Loan

Housing Finance

Making your financial dreams come true can sometimes require a helping hand. Be it to renovate your home, start a business, plan a lavish wedding, or any other lofty goal, having the requisite funding is essential. When it comes to loans taken for housing purposes, your long term goals can change. Perhaps you took out your loan five years ago, and now you wish to renovate your house. What should you do if the loan amount doesn’t suffice? This is where a top-up loan comes in.

What is top up loan?

A top-up loan is an additional help on top of a pre-existing loan that is provided by banks and financial institutions which can help you fulfilyour goals through extra financial aid. To be specific, a top-up loan works by being added over and above your home loan amount. Similarly to how you top-up your mobile balance when you run low, banks also offer a top-up facility over your current balance. Most lenders offer a top-up facility. If your lender does not give you the option to top-up your home loan, you can always transfer to a lender that offers this facility.

Let’s understand how a top-up facility will work well using the aforementioned example of home renovation. Let’s say you took out a home loan of ₹50 lakhs payable over a ten year period. Five years into your loan repayment, assume your outstanding principal on this home loan is ₹28 lakhs. However, if you are considering a major home renovation, this amount might not be enough. You have multiple options. You could purchase a fresh personal loan to finance your renovation, or you could opt for a top-up facility. In most cases, the top-up facility would be the cheaper option worth considering.

Features of top-up loans:

Top-up loans have the following characteristics. Use the following pointers to navigate whether they are worth considering.

  • Eligibility criteria:Similar to how a loan has to be approved by one’s lender, a top-up loan is not available to everyone who has availed of a home loan from a bank. In fact, several factors are looked into by one’s lender before they decide to grant a top-up loan. For instance, the borrower’s ability to repay in timely instalments is assessed by looking at their credit score. This can simply be seen through the repayment of the previous home loan. If the borrower’s credit report comes out as favourable, the bank will grant them the top-up loan.
  • Processing fees:Usually, opting for a top-up loan isn’t free. In fact, there are processing fees applied to the top-up facility. In some cases, the financial institution might be open to waiving the fee. Check with your lender beforehand about any processing fees for the top-up loan.
  • Tenor:A top-up loan is usually given for the remainder of the pre-existing loan’s outstanding period. This means, if your home loan policy has a remaining tenor of 4 years, the top-up facility will also have to be repaid within this tenor. However, the tenor can be different across lenders.
  • Rate of Interest:The interest rate that is applied on your top-up loan facility will likely be slightly higher than the rate applied on your pre-existing home loan policy. However, in comparison to the high interest rates applied on personal loans, the top-up loan interest rate is more attractive.
  • Purpose:A top-up loan can be utilised for purposes of construction or modification of your house. You can also use it to meet any personal expenses like funding a child’s education. However, note that you cannot utilise a top-up loan for any speculative purposes.


A top-up loan can be exactly what you need to fund your home’s renovation. It is added over and above your pre-existing home loan policy and can come out to be cheaper than taking on a separate personal loan.