Existing borrowers may have to incur significant lifestyle expenses related to home improvement or renovations, personal travel, car purchase, higher education / child marriage, medical emergencies , etc. home loans from their existing mortgage lenders.
Let’s talk about the 5 main benefits of a complementary home loan for existing home loan borrowers:
Unrestricted end use funds
While top-up home loans can only be used by existing home loan borrowers, there are no restrictions on the end use of the funds except for speculative purposes. The absence of end-use restrictions makes complementary home loans an alternative to credit card loans or personal loans for existing home borrowers. The proceeds of a complementary home loan can also be used to purchase a car, finance the child’s higher education, etc.
Lower interest rate
The interest rates for personal loans vary between 9% and 24% per year based on the credit profiles of the borrowers. The interest rates for credit card loans are generally a little higher than the interest rates for personal loans available to a borrower from the same lender. However, the interest rates for top-up home loans are generally the same or a little higher than the current interest rate for the underlying home loans. This makes top-up home loans one of the cheapest credit options for existing home borrowers who benefit from home loans at lower interest rates.
Longer repayment term
The duration of the complementary real estate loans depends mainly on the residual duration of the underlying real estate loans. For example, for an existing mortgage borrower whose residual mortgage term is 15 years, his additional mortgage loan term can be up to 15 years. The loan term for alternative credit options like credit card loans and personal loans is typically 5 years, with some lenders willing to offer a longer personal loan term of up to 7 years. To the extent that a longer term results in lower EMIs, choosing a top-up home loan can help reduce the burden of EMIs. Likewise, existing home loan borrowers who are looking for longer terms to finance their car purchase may also consider using top-up home loans.
Higher loan amount
The loan amount in case of additional mortgage loan can go up to Rs 50 lakh or more. However, it can mainly be up to the difference between the original amount of the sanctioned mortgage and the outstanding amount of the loan. The loan amount in case of personal loans can vary from Rs 50,000 to Rs 40 lakh based on the borrower’s income and repayment capacity. For credit card loans, the loan amount is usually a proportion of the free credit limit of the credit card holder. However, a few card issuers may offer a credit card loan in excess of the credit card holder’s credit limit. Thus, the chances of obtaining a higher loan amount are much higher in the case of a complementary home loan, especially for those who have already paid off a significant portion of the original mortgage amount.
Fast processing and documentation
Complementary home loans tend to take longer to process than credit card loans and personal loans. Credit card loans are usually disbursed on the same day as the loan application, while personal loans are disbursed within 2-7 days. However, some lenders have started offering pre-approved top-up home loans to their existing home borrowers. These lenders generally claim to disburse additional home loans on the same day as the loan application. This allows instant top-up home loans to compete with instant credit card loans and personal loans in terms of quick disbursement.
(By Ratan Chaudhary, Head of Home Loans, Paisabazaar.com)