Which is Better for Financing Home Repairs – Top-Up Loan or Home Improvement Loan?

Becoming a homeowner is one of the greatest feelings in the world. It can be perfectly summarised as the culmination of the years-long quest. You have saved every penny possible, tried to add more sources of income, given up on your urges, and cut your expenses, wherever possible, to realise this dream of yours! It is obvious that due to rising prices of residential properties, you would not have been able to save enough to purchase downpayment. It is likely that you have exhausted a major part of your savings to pay for the margin money and other expenses like stamp duty, government taxes, mutation charges, etc.

Besides, if the property you have purchased requires additional fixtures or repairs, then you are looking at an uphill task. After all, you have used up your entire savings on completing the purchase and now are serving the EMIs, which make up a significant portion of your monthly income. Arranging for funds for home improvement is not a cakewalk when your home loan is already running.

Well, you need not worry too much. Understanding this need of the homeowners, most banks these days offer exclusive products to cater to the requirement. Top-Up Loans and Home Improvement Loans are amongst the most popular options available to pay for the renovation and repair expenses. But which one of them is more suitable for you?

Let’s walk through a detailed analysis for your perusal.

Home Improvement Loan

As undertaking home renovation or repair involves a lot of expenses, it is not possible to satisfy these needs with a Personal Loan. The EMIs could take a heavy toll on your finances.

Herein, secured Home Improvement Loans are better alternatives to fund the required renovation expenses on your residential property. To avail of this secured loan, you need to pledge your property with the lender. If you already have a running Home Loan, Apply for a Home Improvement Loan only with the same lender.

Here are some of the key features of home improvement loans that you must be aware of

• You can avail up to 80% of the value of the property as a Home Improvement Loan.
• Repayment tenor for a Home Improvement Loan is usually up to 15 years or remaining repayment tenor of your Home Loan.
• Property in question should be less than 35 years old.
• Interest rates would vary between 11% to 12% p.a.
• You need to submit a home renovation estimate to the financial institution to avail this facility.
• Age of all the applicants and co-applicants should be at least 21 years.
• Home Improvement Loans also help you save on your income tax liability. You can avail up to Rs. 30,000deduction on the interest paid on Home Improvement Loan under Sec 24 of the Income Tax Act 1961. This deduction is subject to the maximum permissible limit of Rs. 2,00,000under Sec 24.

Top-Up Loan

When you have a running Home Loan account against your residential property and have been making the repayments as per the loan schedule, then you can avail a Top-Up loan against it. The Top-Up loan is a secured loan which is offered by your Home Loan lender after extending the existing mortgage against property. For instance, if you have an SBI Home Loan, you can opt for a Top-Up loan after repaying your EMIs for 12 months. The minimum amount you can avail as a Top-Up against SBI Home Loan is Rs. 1 Lakh. The amount availed as a Top-Up loan can be used for any requirement that you have, including home renovation and repairs. Following are the major features of a Home Loan Top-Up loan:

• You can avail a Top-Up Loan only if you have an active Home Loan account running for the last 12 months.
• The maximum amount available as a Top-Up Loan is up to 80% of the value of your property minus the outstanding principal amount.
• There is no need to seek permission from the lender regarding the usage of Top-Up loan. You can use the amount as per your discretion.
• Maximum repayment tenor available for a Top-Up loan is either 20 years or the remaining tenor of the Home Loan.
• Interest rates applicable to top-up loans are slightly higher than Home Loans. Presently, the interest rates vary between 10-12% across lenders.
• You can claim an Income Tax deduction of up to Rs. 30000 against interest paid against repayments of a Top-Up Home Loan. In order to claim this deduction, you have to prove that the money has been used for the renovation and repair of a self-occupied property. This deduction is available under Sec 24 of The Income Tax Act, 1961.

Home Improvement Loan vs. Top-up Loan

The two products are very similar. So the decision to choose the best option amongst a Home Improvement Loan or a Top-Up Home Loan will depend on the following factors:

• The maximum amount your lender is offering you.
• Rate of interest applied to your loan application.
• Repayment tenor required by you and EMIs you can afford.
• Processing charges levied by the lender against your application.

Thus, after you analyse these factors, can you select the best option. For instance, if you have an additional financial requirement for any other purpose, you will choose the Top-Up loan as there is no restriction on the usage of the money. But if you only need money for home renovation and repair, then Home Improvement Loan is your choice.

Also Read: Pros and Cons of a Home Loan Top Up