Top-up Home Loan Vs Balance Transfer: Which Is The Better Option?

When it comes to any type of loan and its repayment, people often get confused between a top-up loan and balance transfer.

A top up loan means an additional loan that is presented well beyond the current credit sum for items like home or personal loan. The top-up loan is proposed to clients who have a current relationship with the lender, have a decent credit score and have reimbursement capacity.

While balance transfer is a kind of credit card exchange in which obligation is moved starting with one record then onto the next. For those settling exorbitant premium obligation, such a move can get a good deal on interest charges whenever done in a calculated way.

Jairam Sridharan, MD, Piramal Finance said, "For those repaying a home loan, the occurrence of an unexpected financial expense or emergency can lead to a difficult situation. In such cases, one might be forced to redirect their fund towards the emergency, in turn leading to a delay in EMI payment and maybe even a default in the home loan repayment. In such a scenario, it is ideal to keep the lender informed about the situation beforehand.

This is where a top-up loan or balance transfer comes in handy. If one has been paying their EMI regularly, most lenders would be open to offering a top-up home loan to help the borrower fulfil the financial commitment and emergency."

In case of balance transfer, the borrower may choose to get their loan transferred to another institution, to make space for some savings that can be used to navigate the other emergency. So, given that both seem like fair options, which should one go for? Sridharan mentions some pointers to clear the doubt;

• The fund that one receives through a top-up home loan can be used for any purpose, be it a medical emergency, an upcoming wedding, or the birth of a child. A balance transfer, on the other hand, only pertains to the repayment of a home loan.

• A top-up home loan can be applied for at any point in the home loan cycle, while a balance transfer with a home loan is an option that opens up to the borrower only after 12 monthly instalments or EMI have been paid.

• A home loan balance transfer is allowed for up to 90 per cent of the property’s value. However, a top-up home loan usually accounts for around 70 per cent of the amount arrived at after deducting the outstanding loan amount from one’s property’s value.

• Top-up home loans are often processed faster, but can only be availed in the duration of the home loan. Balance transfer can take longer to process, but does reduce the repayment tenure significantly.