Home Loan Top Up vs Balance Transfer: Which is Better and Why?

Q: Is it a good idea to transfer home loan?

If your current house loan interest rate is much higher than the interest rates offered by a different lender, you could opt for a home loan balance transfer. You would need to calculate the savings in interest before applying for balance transfer.

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If you have borrowed a home loan to meet your goal of owning a dream home, you are certainly aware of your repayment schedules. You have planned your finances accordingly and are paying EMIs. But what happens when there are unexpected circumstances which may alter your best-laid plans? A sudden financial crunch or a pay cut, for instance, may mean you need extra funds to meet your repayment schedules. Lenders have options such as a home top up loan or a home loan balance transfer to help you tide over the crunch.

But if the question on your mind is which of the two is better: home top up loan vs balance transfer, they are options that come with their own set of advantages. While a home top up loan can increase your budget to meet extra needs, home loan balance transfer is about making your existing loan a little more friendly on your wallet.

Difference Between Top-Up Loans and Balance Transfer

Now that you know what a home top up loan and balance transfer means, it’s time to understand which of the two are better: home top up loan vs balance transfer and under what circumstances you may opt for either one of them.

Particulars	Home Loan Top Up	Home Loan Balance Transfer
Meaning	A home loan top up is offered by a bank or other financial institutions as an additional loan over your current loan. A borrower can either seek a top-up loan with the same lender or another lender.	A home loan balance transfer lets you switch to a new lender offering a better interest rate on your existing home loan. So, if you are on a home loan that charges an interest rate of 10 per cent but upon researching you found that a different lender offers a home loan interest rate of 8.5 per cent, you may opt to take a home loan balance transfer and seek the benefits of a lower interest rate.
Purpose	A home loan top up may be used for any requirement. They don’t come with any conditions on end-use, so the purpose could be to fund a wedding or higher education.	A home loan balance transfer is about transferring your outstanding home loan balance to another lender in order to avail lower interest rates and can be used only for repayment of home loan.
Availability	You can avail a home top up loan at any point in the borrowing cycle.	You may opt for a home loan balance transfer only after 12 monthly instalment payments with your earlier lender.
Loan Amount	A home loan top up may not be beyond 70-75 per cent of the sum arrived by deducting the outstanding loan amount from your property’s market value estimate	A home loan balance transfer may be allowed for 80 to 90 per cent of the overall property’s value.
Loan Tenure	A top up loan is given for the remaining period of your current home loan. The tenure may vary from lender to lender.	A balance transfer lets you make the most of the low interest rates and reduce your repayment tenure.

Eligibility Criteria for Top-Up Loans and Balance Transfer

While there are differences between a home top up loan and balance transfer, there are also different eligibility criteria for the two. See the table below to know the criteria for both options.

Home Loan Top Up	Home Loan Balance Transfer
You would need to have already borrowed a house loan with a lender. You may apply for a top up if the home loan has been disbursed three months back.	You have a current house loan and have repaid 12 monthly instalments.
A top up loan is sanctioned after the lender checks your repayment history on the existing loan and whether there have been any defaults.	Your property would have to be in your ownership. It cannot be under renovation or construction for a home loan balance transfer. To be eligible, EMI payment defaults need to be avoided

Conclusion

Whether you choose a home loan top up or balance transfer, it helps to first assess one’s needs and then opt for them. Also, when you choose a home loan balance transfer, you may also opt for a top up loan along with it. You would have to assess if the new lender has a significantly reduced interest rate that may help you lower your tenure if you opt for a balance transfer. If you are opting for a top-up, you get an extra loan to help you tide over other needs as well. So, take stock of the situation, your financial needs and your income before you choose either a home loan balance transfer or a top-up.

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Home Loan Top Up vs Balance Transfer FAQs

If your current housing loan interest rate is much higher than the interest rates offered by a different lender, you could opt for a home loan balance transfer. You would need to calculate the savings in interest before applying for balance transfer.

A top-up loan is a good idea if you are in urgent need of extra finance or have an emergency. If you have an existing home loan and opt for a top-up, the extra loan may be used for fulfilling any needs such as furnishing or renovation.

A home loan top up may fulfill a range of other needs such as funding a wedding or renovation. Also, the house loan eligibility criteria are simple and require minimal paperwork because of a running home loan.

Home loan balance transfer ensures that you can make use of lower interest rates from a new lender to either lower your tenure or save on the overall interest costs of your loan. You may also avail a top up along with balance transfer.