Which is better: Home Loan Balance Transfer or Home Loan Top Up?

Home loans provide you with an easy source of finance to buy your own home. You can even avail a home loan for buying a plot of land and then construct your home as per your tastes and preferences. Besides providing you finance for your housing needs, home loans also provide you with two additional features if you are an existing borrower. These features are home loan balance transfer and home loan top-up. Both these features are available only if you have an existing home loan in your name which has not been completely repaid. Both these features have a special significance which many borrowers are unaware of. So, before discussing which is better, let’s first understand what these two features are all about –

What is home loan balance transfer?

A home loan balance transfer is when you choose to transfer the outstanding balance of your existing home loan to another lender. The transfer is usually done to avail lower interest rates offered by another lender. Other reasons for opting for balance transfer include the following –

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  • To switch from a fixed rate of interest to floating rate and vice versa
  • To extend the repayment tenure of the loan
  • To avail better services from another lender, etc.

Balance transfer of the home loan, thus, allows you better interest rates, better services and also make the loan more affordable if you can avail an extension of the repayment tenure. However, before opting for a balance transfer of your home loan, you should check the processing fee involved in the transfer. If the fee is high it would nullify the savings in interest which the transfer would promise. In that cases, balance transfer would prove to be a waste. Moreover, balance transfer should be chosen in the starting years of the repayment tenure so that you can save considerably on the interest payments. If the repayment tenure is nearing the end, you would not get a very high interest saving when you transfer the loan.

What is a top-up home loan?

Home loan top-up means availing an additional loan on your existing home loan. Top-up home loan is like a personal loan which you can use for any financial requirements. So, if, during the term of your existing home loan, you face a financial obligation for which you need funds, you can choose the top-up home loan and get the required funds from your home loan lender.

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Top-up loans are better than personal loans because the interest rates are low. Usually, the interest rate for top-up loans is 1% or 2% higher than the applicable interest rate on the home loan. Since the interest rate on the home loan starts at 8.55%, top-up loans prove to have lower interest rates than personal loans whose interest rates can go up to 20%.

Which is better?

As is clear from the above description, each one is different from the other. While home loan balance transfer allows you to reduce your interest outgoes, top-up home loans are meant for availing additional funds at lower interest rates. That is why they cannot be compared. Both have different uses. You can choose any one depending on your requirements.

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