Purchasing a home is one of the biggest achievements in anyone’s life. A home is a place where you feel like belonging to and an extension of yourself. However, life is unpredictable, and so is this plan; maybe there is a need to renovate that dream home, or maybe there are unseen circumstances that could land you in a spot of financial instability. Here’s where home loans offer some needed solutions: home loan top up and home improvement loans.
Home Loan Top-Up: Taking a Loan on Your Home Equity
The home loan top up can be simplified as suppose you have a house, and the prices of the houses within that neighborhood have escalated since you purchased your house. This facility might be little known, but a home loan top up actually means that you get a portion of this increased value; in other words, it is a kind of home equity loan. Let’s assume that it is a kind of second mortgage over your current home loan.
Benefits of a Home Loan Top-Up
Lower Interest Rates: Generally, the top-up loan relies on the equity in your home to secure the loan. The interest rate will usually be lower than when you get an unsecured loan, such as a personal loan or credit card. This is because this directly translates to lower EMIs and perhaps even huge savings over the repayment period of the particular loans.
Convenience: Besides, it is sometimes easier and faster to get a top-up with the same lender you have chosen for your home loan. The approval of the credit is likely to take less time since the lender has most of the information he or she needs.
What to Consider if You Decide to Take a Home Loan Top-Up
Eligibility: To protect themselves, the lenders will look at your current ability to repay with the new loan amount. The approval mainly depends on regular income and a proper credit score.
Potential Fees: As a result, there are a number of charges, like processing fees and other sundry charges, that may be meted out when taking a top-up loan. The following costs must not be left out when preparing the budget.
Home Improvement Loan: How to Get That Dream House Transformation Done?
It is also significant to realize your goals towards improvements because home improvement loans intended for refurbishing might suit you. These types are intended for renovated and repaired premises and, as a rule, are issued at a rate usually somewhat higher than the top-up loan.
Benefits of a Home Improvement Loan
Targeted Use: The funds from a home improvement loan are specially directed towards your home renovation project. This helps to put checks and balances to ensure that the money is used for that intended purpose.
Shorter Loan Terms: The repayment terms of home improvement loans are generally shorter as compared to the top-up loans. It allows one to quickly clear the debt and probably save on the cost of interest charges in the long run.
Potential Tax Benefits: There are also moments when interest paid on the home improvement loans is tax-deductible. Still, it is always good to consult a tax advisor for confirmation of their applicability in your situation.
Considerations for a Home Improvement Loan
Interest Rates: These home improvement loansare costly and are offered at higher interest rates than the normal home loans, which are availed as top-ups.
Secured vs. Unsecured: There are two broad categories of home improvement loans. The secured one is where you use your home as a security, and the unsecured one is just given based on the loan applicant’s credit score. Secured loans usually attract lower interest charges as compared to unsecured loans; however, the latter is quicker to obtain.
Eligibility Criteria: It is possible for different lenders to have an interest in the nature of the renovation work you intend to carry out. Ensure that the loan entails the use that you need it for.
Choosing the Right Option: Comparing: Top-Up Loan and Home Improvement Loan
| Feature | Home Loan Top-Up | Home Improvement Loan |
| Interest Rate | Lower Interest Rates(Secured) | Higher(Secure or unsecured) |
| Repayment Term | Longer (extend your existing home loan period) | Shorter (repayment period) |
| Flexibility | Funds can be used for different purposes | Funds can only be used for home improvement purposes. |
| Eligibility | Depend on increased home equity | Depends on Income and credit score |
Conclusion
While home loan top-up provides options on how to get the required sum of money for your requirements. A home improvement loan is also a way of accessing the funds. Moreover, it should be noted that to make a final decision, it is crucial to carefully assess all the project requirements, financial position, and repayment capacity. Nevertheless, it is always recommended for people in such situations to seek the help of a financial expert in order to identify the best way forward towards financial freedom.
Image by Oleksandr Pidvalnyi from Pixabay (Free for commercial use)
Image published on October 12, 2021
