All About Home Improvement Loans

By Kavya Balaji | December 31, 2018

A home improvement loan can help mold your dream house into a contemporary home. And the best part is that you get tax benefits!

Managed to get your dream home? Congrats! But wait! Do you have the funds to renovate your new home? Don’t worry! You are not alone. Most people who buy a home through a Home Loan are left with little cash to carry out any further improvements in the house.

So what do they do?

Some opt for a Personal Loan to make their new house ‘liveable’. However, considering the fact that a Personal Loan can have an interest rate ranging between 12% and 25% with a short repayment period and high EMIs, it is not the ideal solution.

Additional Reading: Home Loan FAQs

Is there an alternative? Of course! There is a wonderful solution for this kind of a requirement. It’s called a home improvement loan. This is for anyone who wants to make their home a ‘better place’. This could include roofing, flooring, tiling, plastering and a host of other improvements that make a house a ‘home’. So, whether it’s a new house or an old one, you can consider a home improvement loan if you want an elegant and charming home.

Eligibility

The basic eligibility criteria for a home improvement loan is quite simple. Anyone between the age of 18 and 65 years who is salaried or self-employed can apply for a home improvement loan. Mostly only resident Indians can avail this loan.

Existing borrowers can avail the loan from the same lender from where the Home Loan was originally taken. This will help them get a better interest rate and the processing will be much quicker. Even new borrowers can apply for home improvement loan from any of the banks or housing finance companies.

Additional Reading: 6 Smart Ways To Manage Your Home Loan EMIs

Generally, the value of the home improvement loan is restricted to 90% of the appreciated value of the property or 100% of the improvement estimate provided by the borrower, whichever is higher. Most lenders do not provide home improvement loans that are more than Rs. 30 lakhs.

Key Benefits

The home improvement loan is much better than a Personal Loan in order to carry out subsequent improvements and modifications in a house. A Personal Loan comes at a higher interest rate whereas a home improvement loan is available for interest rates of 9% to 12%. Additionally, the improvement loan has a longer repayment tenure when compared to a Personal Loan. This makes the EMI within the reach of the borrower, especially one who is paying  Home Loan installments.

Guidelines by the Reserve Bank of India forbids banks to impose prepayment penalty on such improvement loans which can be cleared off much before their tenure in case one has some additional funds available.

Just like for a Home Loan, you get tax benefits for a home improvement loan. As per Section 24(b) of the Income Tax Act 1961, for a self-occupied house, if you have taken a Home Loan for renovation or a home improvement loan, you can claim a deduction on the interest component. The deduction is capped at Rs. 30,000 a year.

Additional Reading: 5 Most Popular Home Loans

Types of Home Improvement Loans

There are two types of home improvement loans which are available in the market.

  • The defined home improvement loans in which the HFC such as HDFC specifies the exact nature of purposes for which the loan can be availed. Typically these include electrical works, plumbing improvements, tiling, painting, grills, external modifications, overhead water tank and even boundary wall. Some of the banks like ICICI define the purpose of the loan as any renovation or repair to the structure and interior of the house that does not increase the original living floor area.
  • The other type of home improvement loan is called the Top-Up Loan which doesn’t specify the purpose for which it is to be availed. The only requirement for such a loan is that the borrower has to produce a certificate that the loan money has not been used for speculative purposes. The SBIHome Top-Up Loan is a typical home improvement loan that has no end use defined by the lender.

Due to the host of advantages that it offers, the home improvement loan is definitely a much better alternative to a Personal Loan. In case you have finished paying off your home loan or don’t have a home but need funds, you can try a Personal Loan. Here are plenty of loans that come without processing fees or prepayment charges!

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