Catches in the proposition
However, all that glitters is not gold. There are some catches involved in this facility which a customer must know of before applying for the loan.
Many lenders have some hidden conditions associated with these loans. For example, a lender might quote that during the first year of taking a top up loan, if you make any prepayments towards your home loan which may be either full or partial then that amount will be adjusted to your top up loan. Your home loan would still remain intact.
Top up loans can be availed on top of home loans with little documentation. Thus sometimes a borrower gets to borrow a huge sum of money without much effort. But the catch here is that the repayment tenor for the entire amount (home loan + top up loan) is same as the repayment tenor of your home loan.
It seems that these loans are unsecured ones availed at attractive rates. But in reality the lender has taken the house (for which the person has taken the home loan) as security for the top up loan.
Last but not the least these loans are an additional debt to the already acquired debt on home. So one needs to be confident that he is ready to take up a large amount of debt before opting for top up loans. The pros and cons need to be carefully evaluated by the borrower before opting for this loan.