Top-up loans are provided by banks, housing finance companies and other financial institutions that allow individuals to borrow a certain amount of money over and above their home loan. In case of emergencies, when people need money urgently, they either opt for a personal loan or liquidate assets like gold and property to get money. However, taking a top-up loan on an existing home loan is a better option in such cases as they are easily available at a good interest rate.

Due to a medical emergency, accidents or some other needs, when there is a need for money urgently, experts suggest instead of opting for a personal loan or taking a loan against mutual fund, fixed deposit or maxing out your credit card, go for a top-up loan on your existing home loan. Top-up loans mean the bank adds an additional amount to the borrower’s existing home loan. Though most banks offer this facility to their existing customers, as a bank customer you also have to have a regular payment record along with a good credit score to get a top-up loan.

Here are the details you should know if you are planning to take a top-up home loan:

1. To be eligible for a top-up loan, you should have an existing home loan with the bank. You should also have a regular payment record for at least 12 months, and make a valid mortgage.

2. The top-up loan can be taken for any purpose. From bigger expenses such as business expansion, child’s education, medical emergencies, and weddings, you can use the top-up loans for any purpose. Just because the loan is linked with an existing home loan, it is not mandatory that you have to use the money for renovation or house repair.

3. Top-up loans are available for up to a maximum of 20 years or till the tenure of repayment for your home loan. Top-up loans are available for a longer tenure than a gold loan, personal loan, or car loan. The tenure of a top-up loan depends on not only the bank but also on the borrower’s profile, income age, and the value of the property.

4. Though the maximum top-up amount limit varies from bank to bank, the total balance home loan generally does not exceed 70-80 per cent of the total value of the property.

5. As compared to personal loans and car loans, top-up loans are available at lower interest rates. You can get a top-up loan at an interest rate ranging from 9 per cent to 12 per cent from most of the banks.

6. You can also get tax benefits on your top-up loan if it is used for either home construction, extension, home renovation, or to fund your children’s education.