What are the pros and cons of home top-up loans?

Suppose you already have a home loan that you are in the middle of repaying, but you suddenly need more money. The money could be for any personal reason such as home renovation, wedding in the house, etc. What would you do in such a scenario? Will you consider getting a brand new loan? When you went to apply for a home loan, you must have understood how big of financial responsibility it is. Taking several loans at once is not recommended, and it is no solution to the problem. A top-up loan can be of great help in times like these.

What is a top-up loan?

A top-up loan is an additional amount that can be taken over an existing loan. Many banks and NBFCs provide the facility of a top-up loan. You can request your lender to provide you with a top-up loan on your existing instant home loan if you are in need of some additional money. Most lenders are happy to provide top-ups if your repayment history is good, i.e. you make timely payments against the ongoing loan. Instead of applying for a new loan and going through all the formalities of taking up a loan all over again, a top-up loan could be a great choice when your existing loan isn’t fulfilling your needs.

The amount of the top-up loan depends upon the lender. Most banks and NBFCs allow the outstanding loan amount and the top-up amount to be 80% of the property value against which the home loan was initially taken.

Pros of a top-up loan:

Following is the list of pros of applying for a top-up loan: 

1) Flexibility of usage:

The best thing about getting a top-up on your house loan is that there is no restriction on the usage of the top-up amount. Unlike a home loan, which can only be used against the home that you are purchasing, a top-up loan can also be used for personal expenses. Banks or NBFCs do not put any such restriction on the usage as long are you are willing to make the repayment with discipline.

2) Minimal Paperwork:

With the digitization of most services these days, top-up loans can also be opted for online and therefore don’t require much paperwork as compared to traditional loans. Just as when you apply for a housing loan, for its top-up too, you will only be required to submit a few necessary documents online.

3) Quick disbursal :

As a top-up loan is nothing but a top-up on the additional loan, it eliminates some formalities from the process, making it processing of the top-up even faster. The amount gets disbursed quickly after the approval of your application post verification of the documents. Once your lender agrees to the top-up over your existing loan, the amount gets transferred swiftly to your account by completing a few formalities.

4) Low-interest rate:

Another advantage of going with a top-up over your current home loan is that the interest rates are lesser. If you decide to get a personal loan instead of a top-up, the interest rate offered to you will be way higher than that of a top-up. The cheapest home loan is one that offers you the lowest interest rate. By going with a top-up instead of a personal loan, you can ensure that you are still paying low-interest rates on your loan.

5) No additional collateral

While opting for a home loan, you require collateral as security till you complete the repayment of the loan. However, getting a top-up on the same housing loan doesn’t require any collateral. You can simply apply for the top-up without presenting any additional asset as security to your lender.

Cons of a top-up loan:

Following is the list of cons of applying for a top-up loan even when borrowing through the best home loan lenders:

1) Only applicable if you have an ongoing loan:

A person can only apply for a top-up loan if they already have an ongoing housing loan with that lender. As the name suggests, they are add-ons on the existing loan and there you need to be an existing customer to apply for them.

2) Requires a good repayment history:

You will only be able to apply for a top-up loan over your housing loan if you have maintained good repayment behaviour up until that time. If you missed a few EMIs or delayed them time and again, your lender might not offer you a top-up loan. A top-up is only given to individuals that have proven their credibility to their lenders during the repayment tenure.


3) No additional tax benefits:

If you are planning to take a top-up on your home loan for personal expenses, you will not be able to enjoy any tax benefits on it. Top-ups over the loan for personal usage do not provide any tax advantages. The tax benefits are only applicable to limited cases depending upon the purpose of the top-up availed.

4) You end up paying more:

At the time of deciding upon a home loan, you must have picked the best home loan for you as per your budget. Getting a top-up on that loan means an increase in your monthly EMIs. You are going to pay an additional amount every month than your earlier decided monthly instalments. It is suggested to only opt for a top-up if you will be able to afford the additions to your already existing EMIs.


When you apply for a home loan, you do so depending on the price of the property and your budget. If a need for some extra money arises during the repayment tenure, be it for personal or other reasons, you can count on a home top-up loan. Home top-up loans give you the flexibility of not taking another new loan. Moreover, these top-ups do not come with any restrictions on usage. However, one should take them responsibly, as opting for a top-up on your ongoing loan will result in an increase in your monthly instalments. While top-ups can be of great advantage in providing some extra money, it is suggested not to burden yourself by borrowing more than required.

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