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N.S. Vageesh

Chennai , Feb. 19

DO you want to buy a car? Want to go on that long-delayed holiday? Splurge on jewellery? Take a home loan! Housing finance companies and banks now will let you "top up" your existing housing loan.

Officially, the loan is given for renovating your house, never mind if it is only a year old. The lenders don't seem to care if you divert this for other things.

Cut-throat competition has forced companies and banks to come out with such offers. Kumar, a finance professional, who took a housing loan two years ago for around Rs 2 lakh, got an offer from an agent to "top up" his loan with another Rs 3 lakh for "renovation and improvement" purposes. Ms Anandan, another housing loan borrower, got a similar offer from a private bank that agreed to take over her existing housing loan of Rs 10 lakh and topped it up with another Rs 4 lakh at rates of close to 8 per cent.

Companies give you an extra amount, depending upon the amount, tenure of the existing home loan and your track record. The topping up amount can range from a conservative 20 per cent to a staggering 150 per cent of your current loan.

These offers suddenly place a range of luxury items within reach of a cautious middle-class. And force a rethink by housing loan borrowers such as Kumar or Ms Anandan, whose original intent was to pay up their monthly instalments in the quickest possible time. That would have been in 10 years. In the normal course, borrowers such as Kumar - who now drives a scooter - would have waited until he paid off the housing loan before even thinking about a car, the second in the hierarchy of middle class wants. With interest rates dropping drastically over the past two years, such borrowers either reduced their monthly pay-outs or paid off the loan in a shorter period.

The topping-up offer is now giving them ideas. "I think I'll go for an Accent," says Srinivasan, a sober middle management executive and home loan borrower referring to the mid-level luxury car model from Hyundai. The selling point for these offers is that they continue to enjoy around 7.5-8 per cent and the borrower also gets a tax break on the interest. A personal loan for that amount for these goods would have cost 14 per cent and not qualified for any tax break. These offers seem to be catching on.

More Stories on : Credit Market | Housing Finance

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