Home Improvement Loan ..

You can take home improvement loan for internal & external repairs, adding a room, painting, roofing, waterproofing, plumbing, flooring, woodwork, etc. A few banks and Housing Finace companies (HFCs) also provide a loan for buying furniture.

The Home improvement loan can be taken for up to 15 years, and the rate of interest ranges from 11% to 13%.

 Mr. Sumit Bali, Executive President, Kotak Mahindra Bank said, "Such loans score over personal loans as they are secure, and hence, their rate of interest is 4% to 5% percent lower than that of a personal loan"

The Bank / HFCs lender will finance up to 80% of the renovation, while the balance will have to be paid by you. The final amount that is sanctioned will depend on the sum quoted by a certified architect, your repayment capacity, and the total value of the property.

* The bank / HFCs usually gives the money directly to the contractor, though it may also give it to the borrower if he produces the required receipt & bills.

* To avail a home improvement loan, you will need to furnish documents and bills provided by an architect and your bank account statement for the past 6 months.

* Apart from these, a KYC (know your customer) form and property documents are mandatory," says Mr. Sonalee Panda, ICICI Bank.

* Some banks / HFCs will require you to provide a no-objection certificate from your housing society and Municipal Corporation if you are re-modelling the house.

* The paperwork will be reduced if you take a home improvement loan from the same bank that has given you the housing loan.

 

* Some lenders insist on a physical verification of the property before sanctioning the loan, though most of them are not so stringent about how the loan amount is used, and do not make a check on the property.

* The processing fee is usually between 0.5% and 0.75%.

* * If you want to prepay the loan, you will have to pay nearly 2 % to 2.5% of the outstanding amount as a prepayment charge.

* Such a loan can be taken even for a house for which you have already taken a housing loan, though the bank will decide how much to give.

Suppose you buy a house for र 100, and take a loan for र 80, and after two years, the value of the property appreciates to र 115, and your loan liability decreases to र 7 lakh. In such a case, nearly 45% of the title of the house is secure and in your name. So, you will be eligible for a home improvement loan.

If you already have a housing loan, you can go for a top-up loan on the existing one. The rates of interest for both these types of loans range from 10.5% to14%.

 However, a home improvement loan is better than either of these, as some banks may give the loan at a marginal discount of  0.5% basis points compared to the other loans.

Also, in the case of a top-up loan, the amount you get will depend on the outstanding amount of the existing home loan, and you will need to have a clean track record for at least 6 months to a year. The other reason is that you are entitled to a tax benefit of up to र 30,000 a year on the interest payment of the home improvement loan. 

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