Loan Zone: Top-up Leverage

Q. How I can I raise top-up home loan ?

Ashok Lamba Ambala City

A. Banks and housing finance companies offer a top-up home loan to borrowers as an additional loan on top of their existing home loan. You should have repaid a specific portion of your loan (typically 18-24 EMIs) before applying for a top-up loan. The borrower should also be able to prove his/her loan repayment capacity.

The maximum amount offered is the difference between the originally disbursed home loan amount and the current outstanding.

A top-up home loan’s tenure can be extended up to the residual tenure of the home loan. In reality, most lenders cap the tenure at 15 years. Top-up home loans are usually disbursed within two to three weeks of the approval. However, many lenders now offer instant options with same-day disbursement, albiet for smaller amounts.

The interest rates on these loans are usually the same as those on the underlying home loan or slightly higher.

Availing a top-up home loan tends to be cheaper than alternatives like a personal loan, loan against a credit card, or a gold loan. For borrowers with a home loan, a top-up serves as a good source of funding to consolidate other higher-cost debts.

For instance if you have taken a home loan of Rs 40 lakh as 80 per cent of the property value of Rs 50 lakh and if the price goes up in next three years to Rs 70 lakh your overall loan eligibility goes up to Rs 56 lakh as 80 per cent LTV. So this will allow you take additional loan of Rs 16 lakh as top-up home loan.

After RBI’s warning, borrowers should be cautious about end usage. Top-up loans on property are typically meant to fund home improvements. These can also be used for other purposes, such as education or medical expenses, provided this is specified at the time of borrowing.

Despite the lower interest rate on top-up home loans, total interest outgo will rise if you select a longer tenure. Limit the tenure of top-up loans to two to four years.

Q. Can I sell my current flat for which I am paying home loan EMIs?

Amarjit Singh Oberoi, Chandigarh.

A. Yes, with prior permission from your lending bank/financier. First the loan has to be repaid to get the original documents and property documents released. Any amount received in excess of the loan amount and updated interest, will be handed over to you.

Before selling a property, the seller needs to inform the buyer about the outstanding home loan amount. It should be informed even before fixing and negotiating a final price.

An encumbrance certificate is a documentary evidence for proving that the said property is free from any monetary and legal liabilities. It works as proof that the said property can be sold with a free title and the buyer will not have any baggage associated with the property.

For selling the property with an outstanding home loan one needs to follow the below-mentioned process:

• The seller has to get a loan outstanding letter by requesting the bank or lender.
• The seller has to get prior or principal approval from the lender.
• In this approval, a part of the sale consideration (amount) has to be directly paid to the lender or bank and the remaining amount (if any) can go to the seller or owner of the property himself.
• After the above process, the loan gets paid and liability cleared. Then the bank or lender can release the property documents.
• Now the seller can transfer the ownership and title to other property in the name of the buyer.
• If still, any amount remains it can be settled between the seller and buyer.