A home loan serves as more than just the main financial support for buying a home. If you’ve taken out a loan, you’re likely familiar with the repayment schedules and have carefully planned for them. However, unexpected circumstances can spoil your plans and leave you short of funds.
During such times, lenders offer special facilities such as balance transfers and top-ups. Existing borrowers can benefit from these additional options.
If you’re wondering which is better: A home loan top up vs balance transfer, both options have their own set of advantages. A home top-up loan can expand your budget to meet additional needs, while a home loan balance transfer aims to make your existing loan more affordable.
What is a Home Loan Top Up?
A Home Loan Top Up is a facility provided by lenders that allows the existing home loan borrowers to avail an additional amount on top of their current home loan. This facility is exclusive to existing home loan customers and does not require any additional collateral.
A top-up loan allows you to borrow additional funds on your existing home loan. You have the option to get this top-up loan from your current lender or switch to a new lender, which could offer a lower rate of interest.
What is a Home loan Balance Transfer?
A home loan balance transfer is a facility that involves moving your existing loan balance from one lender to another. This choice is typically made if the home loan borrowers get more favorable loan terms offered by the new lender, such as reduced interest rates, extended repayment periods, lower processing fees, and other benefits.
This option can be especially beneficial during financial crises as it can lead to lower EMIs or reduce overall interest expenses. Calculate your Home Loan EMI here.
Imagine if you currently have a home loan with an interest rate of 10.5 % p.a, but discover that another lender offers a lower rate of 8.85% p.a, you might consider a home loan balance transfer to take advantage of the lower interest rate.
Difference Between Top-up Loan and Balance Transfer
A brief comparison between the two is provided below:
| Particulars | Home Loan Top up | Home Loan Balance Transfer |
| Meaning | A Home Loan Top up is an additional loan over your current home loan. | A Home Loan Balance Transfer refers to transferring your existing home loan to a new lender. |
| Purpose | Can be used for any requirement without conditions. | Used only for the repayment of the existing home loan. |
| Availability | Available at any point in the borrowing cycle. | Typically available after 12 monthly installment payments with the earlier lender. |
| Loan Amount | Up to 70-75% of the property’s market value estimate. | Up to 70-75% of the property’s market value estimate. |
| Tenure | Typically for the remaining period of the current loan. | Can help reduce repayment tenure based on new terms. |
| Choice of Lender | Can be applied with current or new lenders. | Only available when transferring the loan to a new lender. |
Also Read: 10 Things you should Consider Before Applying For Home Loan?
Eligibility Criteria – Home loan top up vs Home loan Balance transfer
While there are differences between a Home loan top up and a balance transfer, there are also distinct eligibility criteria for each. See the table below for details on the criteria for both options.
| Home Loan top up | Home Loan Balance Transfer |
| The borrower is eligible to apply for a Home Loan Top up only after 3 months of existing home loan disbursement. Most lenders offer INR1 lakh top-up after 3 EMIs. | You are eligible to switch lenders in case of a home loan balance transfer only after 12 successful EMIs with the current lender. |
| Property status is not specified, but the repayment history on the current loan is checked. | Property must be in possession and not under construction or renovation. |
Conclusion
Whether you decide on a home loan top-up or balance transfer, it is important to analyse your needs before making a choice. If you opt for a home loan balance transfer, you can also choose a top-up loan alongside it.
It’s important to assess if the new lender offers a considerably lower interest rate that could potentially reduce your repayment tenure. On the other hand, a top-up loan provides additional funds to meet other financial needs. Therefore, it’s essential to carefully consider your situation, financial requirements, and income before deciding on either a home loan balance transfer or a top-up.
Also Read: Did you know what are tax benefits on Home loan?
Frequently Asked Questions
Q.1 Does taking a top-up loan affect your credit score?
No, taking a top-up loan does not affect your credit score.
Q.2 Which is better, getting a top-up loan or a new loan?
It is often better to opt for a top-up loan, especially in a market with limited credit availability, as these loans typically offer better interest rates when obtained from your existing lender.
Q.3 Is it possible to transfer a home loan to a personal loan?
No, you cannot transfer a home loan to a personal loan.
Q.4 What is the maximum amount that can be obtained as a top-up loan?
The maximum top-up loan amount you can avail is either equal to the originally sanctioned loan amount of all your home loans combined or INR 50 lakh, whichever is lower.
Q.5 How long do you have to wait to transfer a home loan?
You can transfer your home loan through a balance transfer of 12 to 18 months after consistently repaying your existing housing loan.
