Go for home improvement loans
A home improvement loan is the most financially sound decision for two main reasons – interest rates and tax benefits.
Owning a house is a lot like having a kid. It comes with its share of responsibilities. Every few years it requires a new coat of paint, broken fixtures need replacing, etc. But these expenses are normally not that major and can be easily financed without any help. Usually assistance is needed for slightly bigger projects such as remodelling a kitchen or redoing the flooring of your home. In such cases most people either save up or go for a personal loan. However, the most financially sound decision is to go for home improvement loans.
Home improvement loans can be taken for all construction and renovation work. But this does not include buying new furniture or consumer durables like washing machines.
The amount of loan the bank sanctions depends on the amount required for the renovation, for which you need to get a quote from a certified architect, the total value of the property and your repayment capacity. If you are remodelling the house, some banks ask for a no-objection certificate (NOC) from your housing society and the municipal corporation. You’ll be asked to submit fewer documents if you avail the home improvement loan from the same bank that lent you your home loan.
Usually lenders give a loan to finance up to 80% of the renovation. You will need to arrange for the rest. Some banks insist on a physical verification of the property before sanctioning the loan. But most are not stringent about how the loan amount is used and don’t normally come to check the status of the renovation.
Normally the bank gives the money straight to the contractor. However, it will disburse the money to you if you produce the receipts and bills of the expenses. If the quantum of work is considerable, then banks usually disburse the money as per the rate of completion of the construction work.
Home improvement loans are favoured over personal loans for two main reasons – their interest rates and tax benefits.
Since home improvement loans are secured, their rates of interest are 4-5% lower than that of personal loans. Typically banks levy an interest of 10-10.5% on home improvement loans. The tenure ranges from 20 to 30 years. Banks also charge a processing fee that ranges between 0.5% and 1%.
Home improvement loans also come with tax benefits. Under Section 24 of the Income Tax Act, the interest paid on the home improvement loan gets a tax deduction of up to Rs30,000 per annum. The co-owner is also eligible for this deduction. However, bear in mind that the deduction is part of the overall tax benefit under Section 24, which amounts to Rs1,50,000 for interest paid on housing loans.