Give your home a makeover

Owning a house of your own is everyone’s dream, but the dream further extends to making the house into a lovely home, which calls for an additional investment. Or simply, after several years of wear and tear your house may need renovation – whether it is repair, flooring, plaster, painting, plumbing, electrical work, fixing false ceilings or waterproofing and roofing. Any or all of these would come at a cost, but the good news is that you can refurb your home with a home improvement loan offered by most of the home loan lenders. The loan also provides for furnishing of the house. Here is everything you need to know about home improvement loan.

Eligibility: While the eligibility criterion will vary from bank to bank, home improvement loans are offered to salaried individuals and self employed professionals. When it comes to age, the maximum age at which you can avail the loan is your retirement age minus the loan tenure. Every owner of the property must be a co-applicant for the loan, though all the co-applicants need not necessarily be the owners.

Loan amount: Loan amount guidelines differ from bank to bank. But the loan amount as a percentage of the estimated cost of improvement decreases as the loan amount increases. For example, it could be about 90 per cent of the improvement estimate for an improvement estimate up to Rs 25 lakh, 80 per cent for an improvement estimate between Rs 25 lakh and Rs 75 lakh and 75 per cent for an improvement estimate of more than Rs 75 lakh. Banks may also offer a loan up to 100 per cent of the entire improvement estimate, subject to the market value of the property as assessed by the bank to existing bank customers. The loan eligibility will be decided by the bank depending on income, age, qualification and other factors.

Type of loan: Just like a home loan, banks will normally offer both fixed and floating rate loans. The floating rate loan will be linked to the bank’s prime lending rate and will be revised after a period of 3 or 6 months. You can also go for a fixed rate loan. Banks also offer a blend of both where you can take a fixed loan for a certain period and then convert it into a floating rate loan.

Interest rates: The floating interest rate is generally in the range of 8.5 to 11 per cent depending on a lot of factors. Interest rates for fixed loans are slightly higher and increase depending on tenure of the loan which is fixed.

Tenure and repayment: The loan is for a maximum term of 15 years, depending on your age of retirement and your profile. The repayment process works like a normal home loan and the loan can be paid back in EMIs.

Tax benefits: Under Section 24(b) of the Income Tax Act of 1961, the interest paid on a home improvement loan is eligible for tax deduction for an amount of up to Rs 30,000 per annum. No deduction amount is allowed on the principal repayment. However, remember that this will be a part of the overall limit of Rs 2 lakh towards home loan interest payment, if you already have an existing home loan. If the house is owned jointly, both the co-owners can claim tax benefits separately. 

anagh@outlookindia.com