Planning to renovate your home? Here’s how to finance it

Having your own home means getting into a lifelong commitment to maintain it. Regular maintenance and periodic renovations ensure a healthy valuation for your property while ensuring high quality of living, tidy surroundings, and a healthy life. It guards the property against wear and tear and prolongs its life. Renovation can also provide the property a contemporary look and feel.

Replacing outdated and worn-out fittings and fixtures in bathrooms and kitchens, building new furniture, filling up wall cracks, getting a fresh coat of paint, maintaining pipes and tanks etc. are regular facets of home-owning, and so can be structural changes like constructing a new floor to accommodate your growing family.

Funding options for home renovation

One of the best ways to fund home improvement is to maintain a dedicated recurring deposit (RD) wherein you save a fixed amount every month as you prepare to meet this expense at a future date.

This alleviates the burden of a huge outgo. Another option is to borrow money from the bank. Several banks offer loans for your home improvement needs, and you can approach them if your cash requirement is large. Alternatively, you could take a personal loan if your requirement is smaller.

If you are already repaying a home loan, you have the option to take a top-up loan home loan. The best way to find out which type of loan suits you is to check the eligibility criteria, interest rate, associated charges and match it with the own requirements.

Eligibility criteria and terms of loan

The eligibility criteria for taking a loan for home renovation/improvement are as follows:

Home improvement loan

• The maximum loan amount for salaried persons is restricted to two times his total annual salary. For an applicant other than a salaried person, the upper limit for the loan is up to 2 times his net annual income (last 3 years average) plus depreciation claimed in an individual capacity
• A margin of 25% of total estimated cost of renovation including cost of furniture, repair, extension, furnishing and fittings and also the stamp duty is payable for the equitable mortgage
• The property is mortgaged as security
• The maximum tenure of home improvement loan is normally 10 yearsTop-up home loan

• Permissible loan amount: 80% of prevailing market value of the property for loan up to Rs 75 lakh, and 75% of market value for loan above Rs 75 lakh. The present outstanding amount of the home loan is also adjusted from the permissible limit
• A good repayment history for last one year is required
• Mortgage of property is in favour of the bank

Loan comparison table

Note: Data taken from the respective bank’s website as on 6^th Jun 2016

What’s your best option?

Undoubtedly, if you are an existing home loan customer then your best way forward for a home renovation is to take a top-up home loan. Its processing is simple, and such a loan can be availed at a rate lower than other loan options. If you don’t currently have a home loan, then you can take a home improvement loan (or loan against property) as the interest rate in this case is again not very high and you can opt for a payback tenure of up to 10 years.

If you don’t want to mortgage the property and if the loan requirement is lower (say, up to Rs 2 lakh), then you can go for a personal loan.

Nevertheless, it is advisable to plan your expenses thoroughly and to save your own money to meet such expenses. Therefore save up over a long period through an RD to ease your cash burden, and always keep taking a loan as your secondary option.