Understanding Top-up Loans and Home Improvement Loans
Becoming a homeowner is a milestone most people work towards for years. You save carefully, cut back on expenses, and prepare yourself for one of the biggest financial commitments of your life.
If the property you move into requires repairs, upgrades, or interior work, arranging additional funds while managing ongoing EMIs can become challenging. These improvements are often essential for comfort, functionality, or simply making the space move-in ready.
To address this, two commonly offered options are Top-up Loans and home improvement loans. Both provide access to additional funds, but they serve slightly different purposes and are structured to meet different requirements.
A Top-up Loan allows you to borrow an additional amount over your existing Home Loan, making it ideal for those who require flexible, quick financing with minimal documentation. A home improvement loan, on the other hand, is specifically designed to cover renovation, repair, and remodelling expenses.
Differences Between Top-Up Loan vs. Home Improvement Loan
Before you decide which to avail of, you should understand what each loan type offers and what its unique aspects. Read on to know more.
Top-Up Loan
It is easy to understand how a Top-up Loan works. If an individual has an existing Home Loan in a bank or NBFC and thinks they need a renovation in their home but don’t have adequate funds, they can reach out to the existing lender and apply for a top-up on the existing Home Loan.
The rate of interest for a Top-up Loan is typically relatively lower than that of a personal loan but 1-2% higher than that of a Home Loan. The tenure of a Top-up Loan is lesser or the same as that of an existing loan. No additional paperwork or eligibility requirements are needed for applying for a top-up loan.
The advantage of availing of Top-up Loan is that it can be used for any housing-related needs, such as refurbishing your home or remodelling it.
Home Improvement Loan
There are a host of lending institutions and non-banking finance companies (NBFCs) that offer home improvement loans. These loans have a low-interest rate (10.5% -11.5%) when compared to other types of loans, such as personal loans. The tenure for these types of loans is longer (up to 15 years), unlike a personal loan, which is given for a tenure of 2 to 5 years. Even the amount sanctioned is higher than that of a personal loan. However, these loans are given after analysing the applicant's home and by a rough estimation of the cost of improving the home.
Highlights of a Home Improvement Loan
Here are some of the highlights of a home improvement loan that you need to be aware of:
- You can avail of up to about 80% of the property value as a home improvement loan
- The loan repayment tenure in case of a home improvement loan is up to 15 years or the remaining repayment tenure of your Home Loan
- The property that is in question must be less than 35-year-old
- Home loan interest rates would vary from 11%–12% p.a.
- You must also submit a renovation estimate to the financial institution for such a facility
- The age of home loan co-applicants as well as that of the applicants must be at least 21 years
Home improvement loans help save on one’s income tax liability. You can avail of up to Rs.30,000 deductions on the interest paid on a home improvement loan following Sec 24 of ITA 1961. The deduction is subject to a limit of Rs.2,00,000 under Sec 24.
Eligibility Criteria to Apply for a Top-Up Home Loan
Following are some criteria that you will need to fulfil when applying for a top-up loan:
- No EMI payments of credits should be due. All missed payments must be cleared.
- People should pay off their existing loan within 6 months.
Apart from these, there can be other conditions that applicants need to fulfil when applying for a loan.
*Terms and conditions apply.
