Choosing between getting a top-up loan or a home loan transfer is sometimes a hard decision especially because it can affect your future plans and finances. Both options have their advantages based on the financial goals you have and your current circumstances. You need to understand their benefits and differences to help you make the right decision. These two strategies help you manage your home loan effectively.

Home loan top-up

A top-up loan on a home loan is when you get another loan amount above the already existing home loan. Most financial institutions offer this option. Usually, the interest charged on this extra amount is higher than what is charged on the old loan. However, the rate is lower than credit card charges and personal loans interest.

The benefits

There are several benefits associated with top-up home loans. These include:

• Cost-effectiveness: It is better to take the top-up loan instead of a personal loan because it attracts a lower interest rate in comparison. This means you can still meet any additional financial responsibilities at at a better rate.
• Matching tenure: The additional loan offered normally has the same repayment tenure as the outstanding or old home loan. This means that a borrower has adequate time to repay the other loan.
• No restrictions: Typically, there are no restrictions on how the top-up loan is used. You don’t have to use it for home-related purposes only. It can be applied to things like business expansion, medical emergencies, and education among others.
• Attracts tax benefits: With a home loan top up, you can enjoy some tax benefits. However, this depends mainly on how the loan amount is used in the end.

Situations when you can opt for a top-up loan

Getting a top-up loan is a great option when additional funds are needed for different purposes and without restriction. This is an advantage to the borrower especially if they are comfortable with their lender and interest rate charged on the existing loan.

You can also go the top-up way if you need a high-interest debt to be consolidated. It is a good choice in this case because the interest charged on the top-up loan is much lower than credit card charges and personal loan interest.

Another advantage is convenience. You get the loan from an institution that is familiar with your payment habits. This could smoothen out the approval process allowing you to access the loan faster. The lender has your documents, translating to faster processing.

Home loan transfer

Home loan transfer is where an existing loan is transferred to another lender with lower interest rates. It is also called loan refinancing. The interest rate charged on the loan balance is normally one of the biggest factors that motivate this type of transfer. A lower interest rate means greater savings, which is always desirable. There are online home loan transfer calculators that can assist you in the decision-making process. This is by determining all the potential savings you may enjoy if you do decide to transfer your loan to another institution.

Home loan transfer benefits

There are several advantages associated with home refinancing. These include:

• Reducing your monthly installments and interest: Since you will be accessing a lower interest rate, you can decide to integrate your installments reducing their number significantly.
• It’s affordable: Lower interest rates mean a lower payable amount. The fact that you can pay the loan sooner also has a great impact on the total amount paid in the end.
• It’s possible to get better terms: Home refinancing gives the borrower a chance to negotiate for much better loan terms than they were getting with their old provider. This includes things like the EMI and tenure among others.

Before going for this option, you should factor in any costs that will be involved in the process. This could include property valuation charges, legal fees, and any processing costs required.

Situations when a home loan transfer is a good idea

There are several situations when you should consider home refinancing. They include:

• Better interest rates: If you find a lender with considerably lower rates of interest compared to your current one, then a home loan transfer could be a good idea. By doing the transfer, you can enjoy a lower rate of interest, which means a lower total interest charged over the tenure and sometimes lower EMI.
• Shorter tenure: When you are offered a lower interest rate, it means your monthly obligation is also lowered. As such, you may negotiate for a change in tenure by consolidating the installments. This means you could be able to settle the loan faster.
• If you are not satisfied with your current lender, you should consider this type of transfer. It could also be a good idea if your current lender does not have some additional features you might be looking for. Better terms provided elsewhere could also be an inspiration to get loan refinancing.

Bottom line

Deciding between a top-up loan on a home loan and a home loan transfer is entirely based on an individual’s circumstances and needs. As such, you should make a careful evaluation of your current standing, any costs involved, the benefits you stand to gain, and the overall impact on your finances. You can seek professional advice or utilize online tools like calculators to assist you while making a decision.