A disciplined borrower can use several financial products available on the market to facilitate his financial journey. A supplemental home loan is one of the easiest ways to borrow money without too much documentation and verification. It also offers more flexibility and better functionality than other debt instruments. One of the main eligibility requirements for an add-on home loan is that you must be an existing borrower.
A complementary mortgage has many advantages. Let’s find out how a complementary mortgage works and its main advantages.
Adhil Shetty, CEO of BankBazaar.com, says, “A top-up loan is a borrowing instrument given by banks and financial institutions only to their existing borrowers. The outstanding amount of the home loan is deducted from the value of the property to estimate the maximum amount of the additional loan. The total outstanding balance after the top-up must be within the same LTV range at which the loan was granted. For example, if you have been approved for 80% of the value of the property as a loan, the total principal amount outstanding, including the top-up, may only be 80%. »
So an old home loan account can get more top-up home loans than a new home loan account. Usually, banks require a minimum regular repayment of about a year to allow for a home loan top-up.
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An add-on home loan is easily sanctioned and borrowers are not required to cite the exact reasons for the loan. You can use it for most legal purposes, like paying tuition or college fees, managing wedding expenses, paying vacation expenses, meeting day-to-day expenses, for business purposes, and more. A complementary home loan can be a term loan or an overdraft. (OD). Term loans must be repaid in EMI within the agreed repayment period. Typically, the OD Facility can be drawn for up to 20 years or until the end of the term of the underlying home loan, subject to timely service of outstanding interest and regular repayment of EMIs of the home loan. Thus, a complementary loan allows a longer repayment period compared to other personal loan products available on the market.
A supplementary home loan is one of the most affordable borrowing instruments available on the market to finance personal needs. The processing fee for an add-on loan is approximately 0.50% and the interest varies depending on factors such as the interest rate applicable to the underlying home loan, repayment term, etc.
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Here is the table showing the current interest rate applicable on the additional home loan offered by different banks.
Note: The lowest interest rate (variable rate) on the complementary home loan (term loan) is taken into account in the table. Banks and HFCs are randomly selected. The data includes the range of interest rates on Home Top-up term loans for housing and non-housing purposes. Data taken from the respective bank’s website as of August 22.
Contributed by BankBazaar.com
A complementary mortgage offers you great flexibility in terms of repayment. Usually, lenders do not impose any prepayment penalty on the supplemental loan. A top-up loan with an OD facility can be useful for people with irregular incomes. It can also help consolidate smaller or high-interest loans at affordable borrowing costs. If you plan to use the top-up loan for renovation or rebuilding purposes, you may qualify for the tax benefit u/s 80C and Sec 24 subject to the prescribed limit under the home loan.
Some borrowers use the top-up loan to pay off the EMI of the underlying home loan. It would be better if you avoided it because borrowing at a higher rate to pay off a loan with a lower interest rate can lead to a debt trap. If you have a real cash crunch, a supplemental home loan may be one of the best choices, with plenty of flexibility and attractive repayment options.