Aspects such as interest rates, flexibility, and loan tenure should guide you i deciding the right type of loan for a home makeover
Many people are indulging in home renovation, and a potential homeowner is therefore in quest of the right loan option. Among many options, the two most common ones are top-up home loans and home renovation loans. Though both can be used to fund property improvements, there are differences in eligibility, costs, and suitability for different projects.
A top-up home loan is over and above the loan amount which homeowners can avail. This loan is available subject to a good repayment history and if the loan tenure has significant time left. Since it is related to an existing home loan, borrowers enjoy a relatively lower interest rate as compared to other personal or unsecured loans. The facility of top-up home loan flexibility funds can be used for purposes other than renovation; to fund education or to pay off medical expenses, for example.
Top-up home loans are easily available since they do not require as much documentation as a new loan application. However, the amount eligible to be disbursed would depend upon the outstanding balance of the loan and the value of the property, which could further restrict a larger amount of disbursement. Long repayment periods also mean that the borrowers have to service the remaining tenure of the existing home loan, thus implying longer financial commitment but lower monthly installments.
Unlike personal loans, home renovation loans are specifically intended for property improvements. Most banks and financial institutions offer these loans strictly and only for renovation and repair work, such as painting, tiling, plumbing, and even structural repairs. Home renovation loans are available at a lesser interest rate than personal loans but might be slightly higher than top-up loans.
Home renovation loans borrow a larger amount in a more streamlined manner, though with a shorter tenure than top-up loans. However, renovation loans might have stringent conditions on how one uses the funds owing to several instances where lenders request proof that the funds borrowed strictly go into house renovation work.
Choosing between a top-up home loan and a home renovation loan largely depends on the borrower's needs as well as his or her financial profile. Top-up home loans would be in your favor if you need flexibility in using the funds and already have a home loan with good repayment history. A home renovation loan would be more appropriate for someone who needs to have some kind of direct, specific-purpose loan with a tenure that does not have a long-term commitment tied to it.
Both can be used effectively to finance home upgrades; however, aspects such as interest rates, flexibility, and loan tenure will guide homeowners in deciding on the right type of loan for accomplishing their renovation goals.