5 things to know about home improvement loans

Several of you may be planning to renovate your house this Diwali. Home improvement or renovation is an integral part of maintaining your home, whether it involves repairs, replacement of flooring, painting, plumbing, electrical work, fixing false ceilings, or waterproofing the roof. 
Needless to say, everything comes at a cost. However, you could always go for a home improvement loan, offered by most home loan lenders, to fulfil your needs. The loan also provides for the furnishing of the house. 

Here are five things you need to know before applying for a home improvement loan.

Eligibility: Eligibility criteria vary from bank to bank. The basic criteria include age, income, and residence. Home improvement loans are typically offered to salaried individuals and self-employed professionals. The maximum age at which you could avail of the loan is your retirement age minus the loan tenure. While it is important for every owner of the property to be a co-applicant for the loan, all the co-applicants need not be the owners. 
Before approaching a bank for a loan, it would be advisable to do thorough research on the eligibility requirements. It is important to understand which lender’s eligibility criteria you meet. You could also use an online personal loan eligibility calculator to understand the loan amount you may be eligible for. 

Loan amount: Typically, the loan amount as a percentage of the estimated cost of improvement decreases as the loan amount decreases.  In the case of home renovation and improvement loans, the amount can go up to 100 per cent of the renovation or improvement estimate. 
“However, the loan amount cannot exceed the caps put on home loan LTV (loan-to-value) ratios set by the Reserve Bank of India. For example, for loan amounts of Rs 30 lakh, the (home improvement) loan amount cannot exceed 90 per cent of the property value. For loan amounts of Rs 30 lakh to Rs 75 lakh, the LTV ratio cannot exceed 80 per cent. The LTV ratio cannot exceed 75 per cent for loan amounts greater than Rs 75 lakh,” explains Ratan Chaudhary, head of home loans, Paisabazaar.com, a loan aggregator. The final LTV ratio offered by the lender would depend on the applicant’s credit profile and property features. 

Interest rates: The interest rates of home renovation loans are usually the same or a bit higher than those for regular home loans. Most home improvement loans are unsecured loans, meaning they don’t require any form of collateral. Instead, the lender assesses your true eligibility by reviewing your credit score and income. The interest rate on these ranges from 9.6 per cent to 12.99 per cent, according to data provided by loan aggregator Paisabazaar.com. These loans are offered by banks such as State Bank of India, HDFC Bank, ICICI Bank, Bajaj Finserv, and Yes Bank. Some lenders also offer secured home improvement loans, which come with lower interest rates of 6.5-7 per cent. Some of the banks that offer these loans are ICICI Bank, HDFC Bank, Axis Bank, State Bank of India, and Citibank.
 
Loan tenure: The tenure of home renovation loans can go up to 30 years. “Most lenders usually require the home renovation loan to be completely repaid by the time their borrowers complete 70 years of age,” says Chaudhary.
 
Tax benefits: Interest payments on home renovation loans also offer tax deduction benefits under Section 24b of the Income-tax Act, 1961. Interest payment up to Rs 30,000 is deductible per financial year.