A supplemental home loan may be your best option when you’re looking for a long-term loan, have an outstanding home loan, and don’t want to mortgage a new property to get the loan. It’s also one of the most convenient ways for owners to raise funds.
Here are some of the key benefits of an add-on home loan:
Easy and simple eligibility criteria
Since the lender already knows the creditworthiness of the borrower due to the current home loan, the top-up requires little to no paperwork. “The borrower must have a clean repayment record with the existing home loan along with documents such as ITR return, ID proofs, photographs, etc. Usually, banks allow a top-up home loan to borrowers between the ages of 18 and 70. The maximum add-on home loan amount depends on the outstanding home loan amount, the market value of the underlying mortgaged property and the terms and conditions set by the bank,” says Adhil Shetty, CEO of Bankbazaar.com.
No usage restrictions
Just like a personal loan and a gold loan, you have the freedom to use the complementary home loan according to your needs. You can use the loan to meet needs like an emergency financial need, pay medical bills, or finance your child’s school fees, among others. However, this is not the case with home improvement loans which can only be used for home repairs and renovations (structure of the house).
Long repayment term
Sometimes you need a longer term to pay off your home loan. Options such as gold loan, personal loan, loan against property (LAP), etc., generally allow for a maximum repayment term ranging from one year to 15 years, depending on the terms and conditions of the lender. However, in an add-on home loan, the term depends on the remaining repayment term of the home loan. For example, if the remaining repayment term of your home loan is 20 years, you can also get a maximum repayment term of 20 years for your top-up home loan, subject to the lender’s terms.
Overdraft facility
If you’re looking for frequent cash, a term loan may not be right for you. Thus, you can opt for an additional home loan with an overdraft facility (OD). Some banks offer an OD facility as part of a home loan top-up. The interest rate on a home loan top-up with OD facility is slightly higher than a regular home loan but lower than a personal loan, and you also benefit from continued availability of long-term liquidity. . Thus, a complementary home loan with OD facility can be helpful in this direction.
Low interest rate
The interest rate of the complementary mortgages is the same or slightly higher than that of the underlying mortgage product. Therefore, supplemental home loans are one of the cheapest borrowing tools. If you are planning to buy a car or go on vacation, or if you need funds for your child’s wedding, a supplementary home loan can be one of the cheapest borrowing instruments.
Fiscal advantages
You may receive tax benefits on an add-on home loan if the loan was used solely for the construction, renovation, extension or repair of residential property. The maximum tax deduction available is Rs 30,000 if the loan is used for an independent house. If the loan was used for rented property, there is no limit to the deduction. However, both of these fall under the overall overall tax deduction of Rs 2 lakh per annum which is available on the interest component of home loans.
“If the Supplemental Loan was used to purchase or construct a new property, the principal and interest of the Supplemental Loan will be eligible for a tax deduction which is subject to the prescribed limit under Sections 80C and 24(b). However, if the loan is used for the renovation, alteration or repair of residential property, the deduction can only be claimed for the interest component of the loan and not the principal component,” advises Shetty.
Upcoming summits
* The interest rate on complementary home loans is usually the same or slightly higher than that of the underlying home loan product
* Some banks offer an overdraft facility as part of an additional mortgage. In such a case, the interest rate is slightly higher than that of an ordinary home loan
* You can claim tax benefits if it is used solely for the construction, renovation, extension or repair of a residential property