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Why this loan is better than personal loans

By Anil Rego
Last updated on: June 11, 2016 11:40 IST
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Many house owners are not aware of this option and hence end up taking personal loans to renovate their homes

Home improvement loans are given by all leading banks for any house owner seeking to expand, renovate, or rebuild their house, regardless of whether it is old or new. Many house owners are not aware of this option and hence end up taking personal loans to renovate their homes. It is good to know what all home improvement loans cover and use them smartly.

Home improvement loans can be availed for any kind of home construction or renovation work. This includes expanding to build an additional room or floor, renovating the interiors, or just about any construction activity. However, merely buying new furniture or bathroom fittings will not be covered under this loan. Typically consumer goods do not get covered under home improvement loans while any form of construction is.

Generally any home owner is eligible for the home improvement loan. If there is an existing home loan already with the bank, then the process is very simple. Up to 85 per cent of the property value can be availed and sanctioned for a home improvement loan. If there is no loan existing, then the bank will treat the application as a new application and all the requisite documents such as income certificate, property ownership documents, budget for the home improvement work etc will have to be submitted.

Up to 80 per cent of the property value can be sanctioned as the home improvement loan. The money will be released periodically on completion of construction.

Before the home improvement loan is sanctioned, the bank will send its personnel to physically verify the property site. When there is no pre-existing home loan, the bank will also charge a loan processing fee.

Benefits of applying for a home improvement loan

  • The interest rates are lower than personal loan rates. So the house owner will obviously be paying lesser. Personal loan interest rates usually hover in between 13-17 per cent while the interest rate on home improvement loans currently is within the range of 9-12 per cent.
  • The interests paid on a home improvement loan are eligible for income tax exemptions, up to a limit under Section 24 and the payment of loan amount itself is eligible for tax exemption under Section 80c. However, if there is also a home loan payment happening simultaneously, then the tax exemptions on both will fall under the same income tax law and hence the benefits will not be maximised.
  • Home improvement loans cover any kind of construction activity in the house. This covers an entire gamut of activities which can be used to enhance a house. They provide the house owner with easy finance options to enrich their existing homes.
  • Home improvement rates are lesser by at least 0.25 per cent if the applicant is a woman.

It can be safely said that home improvement loans are definitely worth the while if the house owner is seeking to have construction work in her/his home. They come with tax benefits and competitive interest rates. Home improvement loans can be used to cover almost the entire cost of construction, making it financially comfortable for the house owner.

Availing a home improvement loan is fairly straight forward. It is even easier when it is availed in the bank where a home loan has been previously taken. We would definitely suggest that house owners opt for home improvement loans in case they need money to renovate or reconstruct their homes!

Illustration: Dominic Xavier/

Anil Rego is the founder and CEO of Right Horizons, an investment advisory and wealth management firm that focuses on providing financial solutions that are specific to customer needs.

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Anil Rego