FINANCE TIP OF THE DAY
Can you afford your loan?!
Know the quantity of loan you can afford. The banks may sanction loan based on your income but you should look at your monthly expenditure and see if you can afford the maximum that banks offer. As a thumb rule, remember not to let your credit exceed 40% of your income!
Facelift for your home?
If you need to renovate your home for which you are still paying an EMI (stands for Equated Monthly installment), instead of a personal loan, opt for a home improvement loan! In fact, whether you are an existing home loan borrower or not, you can still pledge the value of your house for financing the renovation.
The value of money that you can borrow on your property increases according to the number of years you have completed in your loan tenure. The value will be set at around 60-70% of the appreciated value of the property. And on the other hand, if you are a new loan borrower, the terms of the loan would be similar to a new home loan.
The home improvement loan comes at a lower interest rate similar to a home loan, that is in the range of 10.5 – 12.5% p.a. while a personal loan comes at an interest rate of 15-16% p.a. or higher! With the home improvement loan, if you wish for a lower EMI, you may opt for a longer repayment period which can be extended up to 10-15 years whereas a personal loan repayment has a maximum time period of up to 5 to 7 years. Also, you can close the home improvement loan earlier depending on. Although, the interest rates are dependent on several factors such as the loan tenure, loan amount, the repayment capacity of the customer. And of course, there are lower interest rates during festive seasons.
Typically, the home improvement loan is paid to you in one lump sum. Some banks offer the home improvement loan in terms of defined use. For instance, the HDFC ( stands for Housing Development and Finance Corporation) Bank lists out internal and external painting, external repairs, plumbing and electrical work, and so on; the ICICI (stands for Industrial Credit and Investment Corporation of India) Bank considers a range of other facilities, internal or external and inclusions that does not increase the living space, like water proofing, plumbing and sanitary work, tiling and flooring, painting etc. Hence, you will be in a position to add or improve the facilities with a loan as cheap as your home loan. However, the terms state that the undertaken work must finish within one year, and the maximum loan amount which can be availed of for these improvements is Rs. 50 Lakhs. The home improvement loan is available to salaried or self-employed resident Indians with a regular income. You will not be able to claim any tax benefits unlike a home loan.
Another aspect to this is that if you are an existing home loan borrower, a top-up facility can be availed of where there is no need to disclose the end use of the fund. The SBI ( stands for State Bank of India) offers home improvement loans even to a new borrower called the SBI Home Plus and the bank does not need to know the end-use of the fund. However, you will have to submit a certificate for non-use of the loan for speculative purposes.