Which is the better option between a home loan top up and a personal loan? This question  might concern a majority of the population. So let us compare the two financial options and  check out which of the two is a more feasible option. 

What is a Top Up Home Loan?

A top up home loan is an additional loan facility given to existing home loan borrowers to  carry out home renovations, repairs, etc., to the existing house. This loan is available to  borrowers maintaining an impeccable repayment record. It is a secured loan with the  equitable mortgage of the home covering the additional top up home loan facility, as well.  Almost all public sector banks and private sector banks offer home loans top up, such as  Federal Bank Home Loan. Similarly, housing finance companies also offer such facilities,  like Indiabulls Home Loan. 

What is a Personal Loan?

A personal loan is a clean and unsecured loan offered by almost all banks for meeting  personal exigencies. It could be a medical emergency or a marriage in the house. It can be  for home renovation or pursuing higher education. The banks generally do not ask for the  purpose of the loan but stipulate conditions that the borrower should not use the funds for  unlawful activities. This loan also requires the borrowers to maintain an excellent repayment  record. 

With the definitions out of our way, here are some points to consider that could help you  decide the better option. 

Interest Rate

A top up home loan is an extension of the home loan. As total security is available for the  loan, the interest rate equals the home loan or is slightly more. On the other hand, the  personal loan is an unsecured facility. Therefore, the risk perception for the banks is high, leading to a higher interest rate than the top up home loan. 

Thus, a top up home loan is a better option, especially if you need the funds for home  renovation.  

Repayment tenure

The top up home loan has an extended tenure that could be anywhere from five years to the  residual tenure of the existing home loan. Generally, Federal Bank Home Loan or Indiabulls  Home Loan spaces out the repayment tenure of the top up home loan to coincide with the  residual repayment tenure of the home loan. Hence, you have a lower EMI liability. In  contrast, the personal loan has a maximum repayment tenure of five years.  

Considering the higher interest rate and fewer EMIs, the EMI amount could be substantially  higher than the top up home loan EMI. However, the benefit is that you liquidate the  personal loan liability quickly than the home loan top up. 

Tax Benefits 

A top up home loan is similar to a home loan for taxation purposes. Hence, the benefits  available on the home loan extend to the home loan top up, subject to the respective ceilings  under various sections. Generally, the personal loan does not get such taxation benefits.  However, some banks like HDFC Bank Personal Loan for house renovation. The  repayment of such loans can be eligible for tax concessions on producing a certificate from  the bank regarding the end-use of funds. 

The home loan top up is a better option than the personal loan in the taxation aspect. Availability of security

The equitable mortgage available with the bank gets extended for the top up home loan. It  affects equity. Hence, the borrower must necessarily liquidate the home loan and the top up  facility while selling the house. There is no security available to the bank in a personal loan.  Hence, you can sell off your property without adjusting your personal loan.  

Under such circumstances, the personal loan seems to be a better option than the top up  home loan. 

Here is a comparison between the pros and cons of the top-up home loan and personal loan  to help you decide on the better option. 

Advantages of Top up Home Loan vs. the drawbacks of Personal Loans 

Top Up Home Loan  Personal Loan
It is available at lower interest rates than  personal loans.  The interest rate on personal loans is higher  than the home loan top up rates.
The repayment tenure can extend up to the  residual home loan tenure, resulting in lower  EMI amounts. The maximum repayment tenure is 60  months.
Tax concessions are available on the home  loan top up similar to that of the home loan. No tax concessions are available on  personal loan repayment. However, there  are certain exceptions.
As the customer already has an existing loan  facility with the bank, it becomes easier for  the banks to process the top up home loan.  The personal loan approval process is quick,  but the applicant should have a perfect  repayment record and a high credit rating.
The borrower does not have to produce new  KYC documents. However, the bank will call  for the latest income documents to determine  

the borrower’s capacity to repay the home  loan and the additional top up facility. 

If the customer does not maintain an account  with the respective bank, the documentation  formalities are more because of KYC  requirements.
The borrower has to provide additional  documents to prove the end-use of funds for  home renovation, repairs, and maintenance  alone. The personal loan also entails the applicant  providing income documents. However,  there is no need to disclose the end-use of  funds.


Benefits of Personal Loans vs. the disadvantages of home loan top up 

Top Up Home Loans  Personal Loan
The top up home loan is available for specific  purposes. The personal loan does not have any such  restrictions.
If the home loan and the top up facility  exceed the original home loan sanction, the  borrower has to extend the mortgage and  register it accordingly (if applicable). In  addition, it can result in payment of stamp  duty and registration charges. A personal loan does not have such  expenses.
Instant home loan top up facilities are not  available because the applicant has to  submit documents to prove the requirement. Instant personal loans are available with a  few clicks.


Final Words

The above comparison should help you decide on the better option between the top up  home loan and the personal loan, depending on the purpose of the loan. For example, if the  purpose is for house repairs and maintenance, it is always better to go for a home loan top  up. Otherwise, a personal loan is a viable option.