Home Loan
Buying a house or even renovating an existing one can cause a big financial strain for an average middle class citizen. Thanks to the growing popularity of home improvement loans; banks are offering users loans to take care of their home renovation work offering financial help along with tax deduction options. Home improvement includes renovation of an existing old house, or that of a just purchased house or apartment. Let us take a look at some of the details regarding home improvement loans.
Home Improvement Loans- Inclusions and Exclusions:
In order to avail any improvement loans, the user needs to get a rough estimate of the amount required for the renovation work and submit the same with the bank. For existing home loan customers, some banks do not bother to monitor the exact renovation work being undertaken once the loan is approved, while others insist on a physical verification after the loan is sanctioned.
Home improvement loans are extended towards all construction and renovation work. Extending a room, making a new balcony, painting, flooring work, all kinds of plumbing or exterior elevation works are all covered under home improvement loans. On the other hand if you are seeking to avail an improvement loan for buying new furniture or consumer durable goods for your home, banks usually do not approve it under the home improvement loans umbrella. Similarly buying a new kitchen cabinet or a new wardrobe is also excluded from the real of home improvement loans.
Eligibility Criteria and Process Flow
Any home owner, who is undertaking an extension or renovation work, can apply for home improvement loan. The sanctioning of the loan will be based on the LTV of the estimate, subject to a maximum of 80%. If you are an existing home loan customer with the bank, the bank would consider the total loan amount applied including the new application that it is not exceeding 85% of the property value including the estimated value of the renovation work.
The process flow of home improvement loan is simple if you already have a home loan. The borrower or the house needs to get a rough estimate of the construction or renovation work to be done and submit it with the bank. If some extension works are undertaking, an approved plan also needs to be submitted. The bank after physical verification of the site and comparison of the estimate, and once the estimate values are correlated, disburses the loan amount to the customer. The money is usually released as per the rate of completion of the construction work if there is a considerable work.
But if you don’t have an existing home loan, you will have to undergo all the processes of a fresh application and submit income and all property documents for loan sanctioning. The processing free for home improvement loan ranges within 0.5% to 0.75%.
Home Improvement Loan Vs Personal Loans:
Many people go for taking personal loans for house renovation either due to ignorance or as they could not wait for the whole process flow for the small amount. Home improvement loans score over personal loans as they are usually secured with a lower rate of interest compared to personal loans.
If you already have a home loan from any bank or non banking financial institutions, the chances of getting a home improvement loan are substantially higher. In that case, the documentations required with personal loans are also significantly higher as compared to home improvement loans. Also home improvement loans are open for tax benefits too unlike personal loans.
On the other hand, if you don’t have an existing home loan and faces a sudden requirement of small amounts for house renovation, taking a gold loan is a good option over a personal loan.
Tax Benefit on Home Improvement Loans:
Under Section 24 of the Income Tax Act, the interest paid on the home improvement loan is tax deductible up to Rs 30,000 per annum. Both the owner and co owner are eligible for tax deduction on the interest paid on such loans. The downside is that the deduction is part of the overall tax benefit of Rs 1, 50,000 available under the section for interest paid on housing loans.
| Axis Bank | ICICI Bank | IDBI Bank | State Bank of India | Union Bank of India | |
| Interest rate per annum for floating rate home loans | Base rate =10.25% | 10.5% to 11.5% | Base rate, ie: 10.25% | 10.15% | Base rate =10.25% |
| Maximum tenure | 25 years | 20 years | 25 years | 30 years | 25 years |
| Processing charges | Upto 1% of the loan amount | 0.50% – 1.00% of the loan amount or Rs. 1500/- (Rs. 2000/- for Mumbai, Delhi & Bangalore), whichever is higher + applicable Service Tax & Surcharge | 0.5% of loan amount | 0.125% of loan amount (minimum of Rs.1000/- and maximum Rs.5000/- ) | 0.5% of loan amount subject to maximum of Rs. 15000. Waived till 31st March 2013 |
| Pre-payment charges | Floating Rate Loans: Nil |
Fixed Rate Loans: 2% of outstanding amountFloating Rate Loans: Nil
Fixed Rate Loans: 2% of outstanding amountFloating Rate Loans: Nil
Fixed Rate Loans: 2%/3% for balance transfer; Nil if repaid from own sources after 6 months from final disbursement, else 2%/3%NilFloating Rate Loans: Nil Floating Rate Loans: Nil Fixed Rate Loans: 2% for balance transfer, Nil if repaid from own sourcesMargin20%20%20%20%20%Exclusions from margin moneyAll removable items including cabinets and furnitureAll removable items including cabinets and furnitureAll removable items including cabinets and furnitureAll removable items including cabinets and furnitureAll removable items including cabinets and furniture