Revamp Your Interiors, and Get a Home Renovation Loan!

While the majority dreams of buying a home, to some people, it is simply passed down by their ancestors. The only chores they are left with are renovation and redecoration or restructuring, as those homes are superannuated. You would want the best for your home, which requires a significant investment too. You can consider getting a home renovation loan to ensure you don’t have to compromise on any aspect of home improvement.

Various banks in India offer home improvement loans at competitive interest rates beginning from 6.5%. Moreover, the tenures proposed are attractive too. To know what banks and HFCs are providing house renovation loans at lower interest rates, how such loans work, and who can apply.

What is Home Renovation Loan?

As the name suggests, a home renovation loan is a type of loan that allows homeowners to make desirable improvements or renovations to a home. A home renovation loan may come in different forms or packages, including simple personal loans, home loans, or government-sponsored loans.

Therefore, you must first clarify your home loan goals and choose the best suitable scheme. A house renovation loan allows you to renovate and spruce up your existing home to a contemporary design and create a more comfortable living space.

Financial institutions offer these secured loans to take care of the expenditures pertaining to the renovation, upgradation, and remodeling of a home. To obtain such loans, you must submit a few documents and property-related papers showcasing that you own that property.

House Renovation Loan Interest Rates

Given below are the home renovation loan interest rates provided by some of the  best lenders:

Note: The interest mentioned above rates are subject to change.

Key Benefits & Features

A home renovation loan has many benefits. They are as follows:

Loan-to-value Ratio

The LTV ratio is the property’s appraised value that can be financed through the home renovation loan.

Usually, lenders provide up to 100% of the renovation assessment, provided that the LTV ratio rendered for a home improvement loan doesn’t surpass the capital on the home loan LTV ratios fixed by the Reserve Bank of India (RBI).

HFCs, Banks, and NBFCs (Non-Banking Financial Companies) perform a credit risk assessment to ensure the final LTV ratio for a loan applicant. Credit risk assessment depends on certain factors, including the borrower’s credit profile, the property’s market value, the borrower’s repayment capacity, etc.

Tax Benefits

Under Section 24 (b) of the IT Act, the borrowers opting for a home improvement loan may claim interest repaid of up to ₹ 30,000 every financial year as a tax deduction.

Balance Transfer Facility

Applicants who are existing borrowers of renovation loans can utilize the balance transfer option. The facility allows them to transfer their outstanding loan to another lender at a lower interest rate. The prime purpose of this facility is to lessen the overall interest cost.

Note: If applicants approach new lenders, they will run a detailed credit risk assessment before approving the borrowers’ balance transfer request.

Loan Tenure

Usually, lenders offer home renovation loans for up to 20 years. Some lenders also allow a loan tenure extension of up to 30 years. Most HFCs or banks providing the home improvement facility/home renovation loan under their regular home loan product render a repayment tenure of up to 30 years.

Lenders consider the borrowers’ repayment potential while deciding their loan tenure. They often need loan applicants to confine their monthly EMI contribution, comprising that of their proposed loan, to under 50-60% of their net monthly income. Also, the borrowers can use a home loan EMI calculator to confirm the loan terms and EMIs for their home renovation loans based on their repayment potential.

Loans for All Homeowners

Whether you are a salaried individual such as a corporate professional or a government employee, or a self-employed individual like a lawyer, doctor, trader, CA, or a small business owner, a home renovation loan is for everybody.

Processing Fees and Prepayment Charges

Several HFCs, NBFCs, and Banks charge processing fees from existing and new borrowers for obtaining home repair loans. The loan processing fees usually range between 0.25% and 2.00% of the entire loan amount.

The Reserve Bank of India has strict guidelines to restrict lenders from charging prepayment fees on floating rate loans.

Nevertheless, lenders can either completely waive the prepayment penalties or charge on fixed-rate loans.

House Renovation Documents for Salaried Individuals

If you are a salaried individual, you must submit the following documents to obtain a house renovation loan:

• filled application containing the applicant’s signature
• Identity proof, such as the PAN Card, Aadhaar Card, Voter ID Card, etc.
• Proof of residence, including Aadhaar Card, Passport, Driving License, Job Card issued by NREGA, etc.
• Income proof, such as the latest Form 16, salary slips of the last two months, and bank statements for the last three months
• Property documents.

How do Home Renovation Loans Work?

Home renovation loans are provided based on your credit, scope of work, location, and where you stand in the loan proceedings. The interest rates and the loan amount hugely depend on the abovementioned factors.

Multiple HFCs (Housing Finance Corporations) and banks provide home renovation loans for home improvement and restructuring. Since such a loan is secure, the interest rates are comparatively lower than unsecured personal loans. Home renovation loan interest rates begin from 6.5% per annum onwards, based on the applicant’s credit profile.

These loans often offer longer terms of up to 30 years than personal loans. Therefore, applicants willing to borrow a higher loan can apply for home renovation loans without worrying about loan repayment terms.

Also, getting home loans for home improvement may create a lien on the underlying property. Applicants who seek a loan of a smaller amount for a shorter term must consider applying for a personal loan instead. Likewise, the processing time of home loans often rises to 2 weeks or more. Therefore, individuals seeking home improvement loans with shorter turnaround times must consider personal loans.

Also, one can either apply individually or jointly for a house renovation loan. Presenting the co-applicants income will only help fetch a higher loan amount. Some HFCs and banks also render preferential interest rates to women borrowers getting home renovation loans. Hence, one can consider making his wife or mother or any female his co-applicant.

Home Renovation Loan Eligibility

Whether you want a loan for restructuring your home or a home interior loan, you must first meet specific criteria that make you eligible for the available loan. They are as follows:

Residential Status: The applicant has to be an Indian resident or a Non-resident Indian.

Applicant’s Age: Most banks demand an applicant’s minimum age to be 21 years and the maximum age to be 65 years. Some banks have kept their minimum age criteria to 18 years.

Applicant’s Employment Status: The applicant can be either a self-employed person or a salaried individual.

Type of Residence: The applicants must have permanent rental accommodation or a residence where they must have resided for a year before applying for the loan.

CIBIL/Credit Score: Whether you are buying a home loan, a home repair loan, or a personal loan, you must have a good credit score. Usually, a credit score of above 700 is considered a good score. However, most banks prefer 750 or above to be a perfect score. A good credit score proves your potential for loan repayment on time and will also get you a lower interest rate.

Who can Apply for Home Renovation Loans?

Any salaried and self-employed Indian residents receiving regular income are eligible to apply for a home renovation loan in India. Applicants can use this loan for renovation, extension, or improvement of their existing residential property.

Home Renovation Loan Government Schemes

Given below are some home renovation loan schemes provided by some State Governments and the Government of India:

• Pradhan Mantri Awas Yojana (PMAY)
• Haryana Housing Board Housing Scheme
• The Maharashtra Housing and Area Development Authority Scheme
• Kerala Housing Board Housing Scheme
• NTR Housing Scheme
• Delhi Development Authority Housing Scheme
• Tamil Nadu Housing Board Scheme
• UP Housing and Development Board

While these schemes are meant for home loans, applicants can use it for home renovation as its a part of the same.

Home Loan vs Renovation Loan

Home loan is a type of loan obtained for purchasing a house. While a house renovation loan is a type of home loan available for home repair, restructuring or renovation.

A home loan can be used for various purposes, including home renovation, improvement, construction, land purchase, home extension, and more. However, a home renovation loan is only meant to serve the purpose of home improvement, such as for flooring, plumbing, roofing, plastering, painting, electrical work, etc. You cannot use it to buy land or construction etc.

The loan amounts offered for home loans are comparatively higher than home renovation loans. Moreover, the range of tenures may also be higher for home loans than home improvement loans.

Frequently Asked Questions (FAQs)