Important Factors You Should Know Before Taking aTop-Up Loan on a Home Loan

 With a top-up loan, which is usually available during home loan balance transfer, a lender extends an additional credit line over and above the existing loan amount. Such credit is usually available at an easy rate of interest. Nonetheless, there are a few important factors that borrowers should keep in mind before availing a top up loan on home loan –

• Conditions to avail it 

To be eligible for such an additional loan amount, borrowers need to initiate the home loan balance transfer process. Moreover, one needs to have a regular repayment record as well. 

• No end-use restriction

 There are no limitations imposed on home loan top up in terms of its usage. The fund may be utilised to meet any number of expenditures that the borrower sees fit. 

• Tenure

The maximum repayment tenure of a top up loan is 20 years, or till the period of repayment of the home loan. This loan tenure also depends on the borrower’s age, income, credit profile and property value. For such credit, you can calculate your monthly outgo with the help of a top up loan calculator.

Must Read: Things you should know before taking a top-up loan.

• Amount limit

Even though the total balance does not usually exceed 70% to 80% of the total property valuation, the maximum top up loan amount sanctioned varies from one lender to another.

• Tax benefits 

If you have used the top up loan amount for construction, extension or renovation of a home, or funding children’s education, you are entitled to claim tax benefits. 

Thus, a top up loan can provide you with much-needed liquidity when you are in need of urgent funds. You would not have to undertake the hassle of applying for a fresh loan to avail the funds. Moreover, this credit is also available at a competitive rate of interest.

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You Should be Aware of Which Home Loan Tenure is Right for You

A home loan is a convenient financial solution for individuals looking to invest in residential property. Potential borrowers can avail up to Rs.3.5 crore under this funding solution to use for constructing or purchasing a house. 

Nonetheless, availing a housing loan also depends on certain factors, where tenor plays a crucial role.

Factors to consider when choosing the home loan tenor

• Monthly income

Understanding home loan EMI aids borrowers in the systematic planning of monthly outlays. An individual’s income stability plays a crucial role in determining the home loan tenor. In this scenario, an applicant must know that opting for a shorter tenor would mandate paying higher EMI. Comparatively, selecting a longer tenor would decrease the EMI but increase the total interest outgo. 

Hence, a shorter tenor is a compatible option, as it reduces the chances of accumulating higher debt in the long run. An individual with a stable income can request a lender for a befitting tenor option.

• Age

Age is again a crucial factor when deciding a home loan tenor. Lenders give more preference to young borrowers who have more workable years. They easily approve a young borrower’s request to repay the outstanding amount over a longer tenor. Most NBFCs set an age limit of 23 to 62 years for salaried individuals under home loan eligibility parameters.

•  Housing loan interest rate

The applicable home loan interest rate also affects the loan tenor. Usually, this interest rate is revised from time to time, where a longer tenor can significantly increase the interest payment. Comparatively, shorter loan duration decreases the chances of the interest rates being revised to become higher. One can use the housing loan EMI calculator on a lender’s platform to calculate the exact rate of interest.

These few tips can help the housing loan borrower to opt for a suitable tenor that would facilitate ease of repayment.

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Facts to Know About PMAY Subsidy Scheme

PMAY or Pradhan Mantri Awas Yojna is a scheme introduced by India's government to offer affordable houses to the economically weaker sections by 2022. This scheme is primarily divided into two sections - Urban and Gramin. 

Under PMAY urban scheme, eligible candidates are divided into three categories, namely -

• Economically weaker section

• Low Income Group (LIG)

• Middle Income Group I and II (MIG I and II)

Individuals belonging to these categories can use the PMAY calculator to determine the exact subsidy amount they are eligible to avail by entering necessary details like loan amount and tenor. 

What is the goal of the PMAY scheme?

This Credit Linked Subsidy Scheme (CLSS) aims for -

• Slum redevelopment using the support of the private sector and by employing land as a resource.

• Offering home loan to eligible candidates for house construction at a low-interest rate.

• Providing a weaker section with affordable houses under private and public sector partnership.

Eligibility criteria for PMAY 

Interested individuals need to fulfil specific PMAY eligibility parameters to make a successful application.

• An eligible candidate mustn't possess a pucca house in any part of the country.

• He/she shouldn’t avail any credit under other existing housing schemes offered by central government.

• Ideally, individuals with an annual income of up to Rs.18 lakh can apply for this PM Awas Yojana.

An individual complying with the above-mentioned criteria needs to fill an application form on the official website. After submitting details, he/she will receive an application number which is crucial for checking the name on PMAY list.

How to check the PMAY list?

An applicant can check his/her name on the PMAY list by following these steps-

• Log in to the official site and select the beneficiary tab.

• Fill in details like Aadhaar number and redirect to the next page.

• Select the ‘submit’ option to view the selection and application status.

Individual’s without an Aadhaar card can use their assessment ID to view their PMAY status. They have to select the PMAY’s track application status page and enter personal details to view the same.

For the PMAY Gramin list, individuals need to open the designated website and fill in the registration number for details. However, if the registration number is amiss, clicking on the ‘search beneficiary details’ option will be helpful. 

Must Read: Know How to check PMAY List

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Reasons Why You Should go for a Top-Up Loan

When you have taken out a loan, a top-up is an additional advance over and above the existing loan amount. Such a facility is popularly termed as top-up loan. It is particularly helpful when borrowers need new credit, but do not seek to avail external financing.  As the borrower's credentials are already submitted to the lender, securing top-up is hassle-free and less time-consuming. 

Here are some of the dominant reasons why a top up loan can be a favourable option -

• Faster processing and disbursal 

Since this additional credit facility is availed from an existing lender of home loan, both the verification process and fund disbursal happens quickly. All the relevant documents of the borrower have already been vetted. 

• Simpler criteria 

While borrowers opting for balance transfer can readily avail a top-up loan, it involves the simple CIBIL score criteria 750 or up, and a healthy credit repayment history. 

• No-end use restriction 

One of the major advantages of this additional credit is that there is no restriction on final utilisation of this fund. You can use to it meet any requirements, which may or may not be related to housing. For example, you would have the liberty to use it for interior decoration or to meet a medical emergency. 

• No further collateral

Borrowers are not required to submit any other collateral apart from what has already been mortgaged while taking out the home loan. Naturally, this credit line is a favourable option among borrowers. 

• Easy interest rate 

The interest rate on top-up is relatively lower than other unsecured loans, making this credit facility more cost-effective. 

• Income Tax benefits 

Borrowers can enjoy income tax benefits for funds available under this credit facility if used for a home extension, renovation, construction, etc. 

Should you seek to derive the full benefit of this credit line, find out about the top-up loan option on the home loan offered by your lender, and streamline your plan to use funds, accordingly. 

Read Also: Things you should know before taking a top-up loan.

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Step by Step Guide for First Time Home Loan Borrowers

Purchasing a home requires borrowers to a vital financial decision, and availing a home loan helps to fulfil this dream. Nonetheless, first-time homeowners often get confused about how they should make the most of availing these funds. 

Following is a step-by-step guide to help homeowners to make an informed decision. 

Step 1: Check the home loan EMI, eligibility, etc.

The first factor new home loan borrowers should check is the EMI payable and eligibility criteria to guarantee approval. In this regard, they can also use a home loan EMI calculator that computes the monthly instalment amounts efficiently. 

Step 2: Check the approval status of the property 

The property one is buying should have a proper and valid registration in the seller’s name. Depending on this factor, lenders approve the loan. 

Step 3: Choose an interest type 

Home loan interest rate is another crucial factor that borrowers will need to consider. Depending on the requirements, they can choose between fixed and floating interest rates. Since it determines the EMI component, borrowers need to be careful while making their decision. 

Step 4: Consider pre-payment and other charges 

Besides choosing housing loan rates, individuals also need to consider different charges that lenders often levy under various instances. For instance, pre-payment, foreclosure fees, etc., are some of the charges that borrowers need to pay. 

Along with that, they also need to know the documents required for home loan. It will expedite the loan verification process. 

Step 5: Choose a lender 

The last step comprises choosing the right lender. Borrowers need to compare home loan rates before settling for one. 

Therefore, following these steps, a first-time homebuyer can avail a housing loan and effectively optimise their borrowing experience. 

Read More: Documents Required for Home Loan Refinance

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Documents Required for Home Loan Refinancing

Individuals looking to avail a lower interest rate on their existing housing loan have the option of transferring the outstanding balance to a new lender. However, one needs to submit a few documents to initiate this home loan balance transfer process -

1. Consent letter 

An existing borrower needs to put in a written application to the current lender intimating about the balance transfer and issuance of consent letter for the same. 

2. No Objection Certificate

One has to obtain NOC from the present financial institution that indicates assent to transfer the outstanding loan amount to a new lender. 

3. Loan agreement

This agreement pertains to a sanction letter issued by the initial lender. 

4. Foreclosure letter

 It declares that the loan is foreclosed at a specific date without any outstanding balance. 

5. Post-dated cheques

To obtain a housing loan, borrowers have to submit post-dated cheques with the lender. These pending cheques are subsequently to be deposited with the new housing finance company. 

6. Property documents

Property documents are highly important for a home loan balance transfer. The entire set has to be submitted to the new financier.  

7. KYC documents

 The new financial institution would require these KYC documents –

• Identification proof 

• Aadhaar card 

• PAN card 

• Voter card 

• Driving license 

• Employment ID card issued by NREGA  

• Address proof

• Aadhaar card 

• Passport 

• Driving license 

• Voter ID 

8. Employment documents 

 These financial documents are essential for balance transfer –

• Latest salary slips 

• Previous six months' salary account statement 

• Form 16 from your present employer 

9. Property related documents 

For home loan transfer, the following set of documents are also required to verify the purchase of your property –

• No Objection Certificate from housing society or property developer 

• Property purchase documents 

• Registration certificate

• Stamp duty papers 

Depending on the new financial institution, further additional documents may have to be submitted for a home loan balance transfer, apart from your photograph and application form of the original lender. 

One should note that availing a top-up loan during balance transfer does not require borrowers to submit any additional documents.

Read Also: Important Things to Consider before Transferring Your Home Loan

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What is PMAY? Know the Facts About its Subsidy

Pradhan Mantri Awas Yojana is an affordable housing scheme introduced by the Government of India in 2015. The aim of this scheme is to provide affordable housings to every Indian. Under this scheme, individuals will receive a subsidy on the home loan availed for the construction of new homes or renovation of an existing one.

Home loan subsidy available under this scheme for the middle-income group is limited to 3% on a loan amount of up to Rs.12 lakh. For the loan amount of up to Rs.9 lakh, applicants will enjoy a subsidy of 4%.

On the other hand, the applicants of PMAY from the EWS and LIG category will also receive a 6.5% subsidy on the loan amount of Rs.6 lakh. Moreover, they will be able to avail up to 3% concession on the loan amount of Rs.12 lakh.

However, to avail this subsidy, borrowers need to fulfil these following criteria –

1. Applicants who wish to receive benefits of this housing scheme must not have a pucca house anywhere in India.

2. Borrowers must not have availed benefits of any other government-backed housing scheme.

3. The guidelines of PM Awas Yojana strictly advises that women must own a property as a co-owner or a sole owner.

4. Individuals need to find a lender that has an MoU with concerned authorities to extend credit under this scheme.

5. Also, the property location must be within the limit of a town, as identified by 2011 Census.

6. Lastly, these benefits can be availed only on home loan applied on and after 17th June 2015. 

CLSS or Credit Linked Subsidy Scheme is the mainstay of this plan. Under this scheme, applicants from different economic sections will receive the benefits of interest reduction on their housing loan repayment. Recently, the government has extended the timeline for CLSS under Pradhan Mantri Awas Yojana to 31st March 2022.

Read Also: How do I avail home loan subsidy under Pradhan Mantri Awas Yojana

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4 Factors That Can Affect Home Loan Interest Rates

 

While home loan interest rates in 2021 have been reduced to their historic lowest, there are several factors that borrowers must account for to enjoy a minimal cost of borrowing.

A host of parameters are taken into consideration which are calculating the home loan interest rate. Given that it is one of the biggest financial commitments that you would be making in your life, it would help you to get the most out of a home loan if you are aware of these factors -

1. Loan amount 

Most financial institutions levy a higher interest rate for a larger loan quantum. Hence, it is advised to make a higher down payment on your housing loan if you want the monthly instalment outgo to reduce. 

2. Credit score

Application for a home loan will only be considered if the borrowers' CIBIL score is 750 or above. With a high credit score, there is a greater chance of loan approval at a lower rate of interest. The same is also applicable if you are applying for a home loan with a co-applicant having a high CIBIL score.

Incidentally, if you apply for a home loan with your spouse, you are also eligible to enjoy home loan interest tax benefits.

3. Loan to value ratio

The loan to value ratio or LTV is the percentage of property value financed through the loan amount. The remainder has to be funded out of the borrower's pocket. 

As per the RBI circular, the LTV is capped at 75% for a loan amount upward of Rs.75 lakh. Accordingly, the interest rate charged is also high. You can use a home loan EMI calculator to determine your monthly outgo to avail such a loan amount. 

4. Type of rate of interest 

Borrowers can opt for a fixed rate or floating rate of interest for a home loan. For a fixed-rate loan option, the interest levied is higher owing to a higher risk to lenders. 

One must note that these factors that impact home loan interest rate will vary from one lender to another. Find out the applicable factors to avail the best interest rates. 

Read Also: Know the Benefits of using Home loan Calculator

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Know How to Deal with Hiked Home Loan Rates With Calm

 Home loan interest rate is determined based on the current market scenario. For instance, RBI controls the repo rate that further influences this rate. On top of that, lenders add their spread, and finally, a rate is proposed to borrowers. 

Thus, individuals who want to get rid of fluctuating home loan interest rates can adopt the following measures. 

• Part-payment 

Individuals can make full use of the surplus cash if they have to pay off a considerable portion of the loan. It will allow individuals to save substantially in interest payment and shorten the tenure. Selected financial institutions also facilitate part-payment with minimal charges. 

In this respect, they can use an annual bonus, interest income from fixed deposits, maturity and the likes. 

• Increase EMIs

Generally, lenders tend to increase the loan tenure if interest rate hikes. Even if it temporarily lowers EMI outgo, the cost of borrowing rises exponentially. Thus, it will be wiser for borrowers to opt for a high EMI and reduce the tenure. 

However, set home loan EMI amount as per repayment capacity, which will ensure smooth loan repayment. 

• Pre-payment

Paying off debts quickly allows borrowers to carry on other financial liabilities with ease. Thus, they can pre-pay EMIs to reduce the principal outstanding, in turn, lowering EMI and interest outgo. 

• Home loan balance transfer 

Another effective way to tackle hiked home loan rates is by choosing loan balance transfer. Existing borrowers can transfer their outstanding loan balance to a new lender, which offers better services and lower interest rates. To maximise the benefits, borrowers should opt for this option in the initial phase of repayment when the interest rate generally remains on a higher side. 

However, this transfer also accompanies several charges that borrowers have to pay both to new and existing lenders. Thus, before selecting, assess the need for the transfer and cost of it. 

These are some of the possible ways to manage hiked home loan interest rate with efficiency. 

Read Also: What factors Affect Your Home Loan Interest Rate

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