Renovating your home makes not just aesthetic sense but improves the value of your property. And you can do it on a loan, says Balaji Rao
A house for many people is a style statement; they experiment with styles, designs and elevations. Sometimes, you buy a house in the early stages of your career that’s in line with your earning capabilities then. Over time, as income levels increase, you would like to make some changes or modifications to the structure, modernise it, or revamp it.
Some people re-do their homes in order to change the vaastu, or to add extra rooms for guests, parents or growing children. Or maybe your house is old and just needs renovations. Most important, useful renovations and upgrading can increase the value of your property.
Given the escalating construction and material costs, renovating a house could prove to be a costly affair, adding up to a few lakhs and more. It is useful, therefore, to know that most banks offer home improvement loans. The types of loans typically available are for undertaking extensions, repairs, renovation, upgradation and creation of additional amenities. Some banks even give loans for furniture purchase. However, most banks do not give home improvement loans for property that is over 35 years old.
The kind of renovation work you can take a loan for includes tiling and flooring work, internal and external painting, plumbing, electrical work, waterproofing and roofing, makeovers of kitchen or bathrooms, iron grill work and any such related work.
The loan amount is based upon an estimation carried out by a certified evaluator or architect. Based on this estimation, a loan of up to 80 per cent of the requirement is normally sanctioned. Some banks even sanction 100 per cent of the estimate. However, most banks lay other caps on the loan amount, such as it being 70-80 per cent of the overall property value. The amount is also determined by the same criteria as that for a home or other loan, and includes age, repayment capacity, stability of income, assets, liabilities, family size etc.
You can either take the loan in conjunction with a housing loan from the same bank, which simplifies the paperwork, or separately at a completely different time and from another bank. There is no restriction on taking a renovation loan even if you still paying back a home loan. The paperwork is similar, and you should keep all home-related documents ready. The loan is given either to the contractor directly or to you as long as you can provide all the bills.
Loan tenures under this category range from 1 to 20 years, and the interest rates are on par with ruling home loan rates. However, tax benefits on a home improvement loan are applicable only on the interest portion, not on the principal. The biggest advantage of a home improvement loan is that since it is a secured loan, the interest rate is usually lower than that of a personal loan.
The writer is a Bangalore-based financial consultant. Mail him at firstname.lastname@example.org