Home Improvement Loan in India
Loans help you achieve your dreams without burning a hole in your pocket as they come with modest interest and monthly installment mode (EMIs). Loans serve as easy cash that you can avail and get your job done easily and pay back the amount in installments. Home improvement loan is a type of home loan that is offered by the banks for the purpose of renovation, replacements, addition in existing property, maintenance and repairs, alterations etc.
Home improvement loan is also popularly known as home renovation loan. It gives you steady cash to take up any kind of renovation in your existing home. Repair works, renovation, external and internal painting of the house, electrical work, external repair work, construction of overhead or underground water tanks, tilling, flooring, waterproofing etc all form a part of Home Improvement Loan.
You can avail this loan, pay your lump sum expenses and then pay it back in easy installments. Thus, you save yourself from being burdened by the cost of renovation at one go. So, if home improvement is on your mind then you need not hold your plans due to shortage of funds.
It goes without saying that if your home gets renovated it adds to the beauty of your place, gives a new look and above all, the value of your property increases in the long run. The life of your property also takes an upward leap.
However, at the time of economic uncertainties, the rates at which home improvement loans is available witness a rise. In such times, these loans do not prove to be productive for you. Majority of banks or financial institutions treat home improvement loan as a secured loan - in order to avail this loan you have to keep your property as collateral security with the banks, thus, freezing the liquidity of your property.
Only 80% of the cost of renovation or repair is funded by the banks. In case you have other loans running in your name or if bank is not completely satisfied with your credit worthiness then the sanctioned amount may be further reduced.
For professionals, the limit of credit that is to be advanced by the bank is generally three times the net annual income and two time the gross annual income in case of salaried personnel. Any property that is older than 35 years would not qualify for the home improvement loan approval.
Home improvement loans can be taken for a span of up to 15 years and the interest rate varies from 10.5 % to 14% from bank to bank. The processing fee for obtaining a Home Improvement Loan generally varies from 0.5% to 0.75%. A pre-payment penalty of approximately 2% of the outstanding loan amount is generally charged by banks if you plan to pre-pay your loan.
If you wish to reduce the paper work or verification checks while you apply for a home improvement loan then it is advisable you opt for the same bank or financial institution that had sanctioned your home loan.
The amount that you borrow in the name of home improvement loan should be used for the same purpose and to ensure this many lenders go in for a physical verification of the property before they advance you the loan.
Tax Benefits on Home Improvement Loans
Home Improvement Loans not only make your renovation or improvements easy but also help in getting you tax benefits. The principal payment on such loan does not qualify for a tax exemption but the interest paid qualifies for tax benefits.
If you have a home improvement loan in your name you are entitled to tax benefits of Rs 30K per annum on the interest paid by you towards the home improvement loan under Section 24.
For those who already have a home loan in their name and are also paying interest towards home improvement loan then the combined overall limit for tax deduction on the interest paid by you towards your home loan as well as home improvement loan goes up to Rs 1,50,000.
Documents Required for Home Improvement Loans – Generally, banks and financial institutions ask for following documents when you apply for home improvement loan, but the documentation may vary from bank to bank.
- In Case of Salaried Personals
- Photograph
- Identity Proof
- Age Proof
- Address Proof
- Bank Statement (Last 6 months)
- Salary Slips (Last 3 months)
- Income Tax Return
- Cheque of Processing Fees
- In Case of Self Employed Professionals
- Photograph
- Identity Proof
- Age Proof
- Address Proof
- Bank Statement (Last 6 months)
- CA Certified / Audited Balance Sheet and Profit & Loss Account (Last 3 years) Income Tax Return (Last 3 years) along with computation of income.
- Education Qualification
- Proof of Business Existence
- Cheque of Processing Fees
- In Case of Self-Employed Non-Professionals
- Photograph
- Identity Proof
- Age Proof
- Address Proof
- Bank Statement (Last 6 months of business)
- Bank Statement (Last 6 months of self)
- CA Certified / Audited Balance Sheet and Profit & Loss Account (Last 3 years)
- Income Tax Return (Last 3 years) along with computation of income.
- Business Profile
- Proof of Business Existence
- Cheque of Processing Fees
Repayment Options for Home Improvement Loans – Generally, following two repayment options are available. These are:
- Repayment can be made through Post Dated Cheques (PDCs) which are drawn on your Salary/Savings Account.
- You can also opt for Electronic Clearing Service (ECS) that is by giving standing instructions to your bank for deducting a specific amount at a specific date every month towards repayment of your home improvement loan.
Contributed By: Megha Sharma |
|
Megha Sharma works as a guest lecturer in Delhi. She holds an MBA & Doctorate from the UPTU. With extensive knowledge and experience in various financial products, she also works as a consultant in banking & finance domains wherein she offers advice to her clients in managing personal finance. | |
