Multiple banks. Different interest rates. Call it a "conflict of interest".

    Home Improvement Loan

    Home improvement loans are designed for the purpose of renovating a house and can be taken by a person who owns the property to be renovated. These loans are given for a maximum term of 15 years and interest charged on these loans lies in the range of 9.5% to 10.5% per year. Processing fee for home improvement loans ranges between 0.5% to 1% of the total loan amount.

    Home renovation loans, as the name suggest, are loans that you can take if you wish to get work done on a property that has already been constructed. These loans help you renovate your house as and when required and works in a fashion similar to the home loan. It can be taken for up to 15 years, or more, and paid back in equated monthly instalments (EMIs). The maximum duration, however, can change depending on the banks policies. Apart from major work that needs to be done in a house, these loans can also be taken to help you furnish your house and pay for things like bathroom fittings, fans, furniture, etc.

    Features and Benefits

    Home loans that are meant to help refurbish your house offer a lot of features and benefits that are meant to make the loan easy to take and manage. Some of these are:

    • Many banks offer choices between fixed and floating interest rates that are meant to give you the choice of an interest rate that suits you. This does not mean that you get to choose the amount of interest. It means that you have a choice in the way the interest is calculated.
    • In some cases banks may offer a combination of the two interest rates where in the first few years will be a fixed interest rate and the remaining tenure will have a floating interest rate.
    • For most of the banks, you can apply for the home renovation loan online thus negating the need for you to journey to the bank itself.
    • As far as the loan amounts are concerned, some banks will cover the entire cost of the renovations. There are some banks that wont cover the entire cost but even then they may cover up to 90% of the cost.
    • In certain cases the bank may issue the entire loan amount in one lump sum or in instalments as and when it is needed.
    • Some banks also offer free credit cards with these loans to sweeten the deal.
    • Many of the banks ask for minimum documentation which means less paper work for you.
    • There is no need for you to have a prior relationship with the bank in order to avail this loan however, being an existing customer can have advantages. Some banks offer up to 80% of the required amount to new customers but 100% of the required amount to existing customers.

    Home Improvement Loan Eligibility Criteria

    Each bank will have its own eligibility criteria for the loans they offer but the gist of these are:

    • You can apply for a home renovation loan as an individual or jointly with the other owners of the house being the co-applicants.
    • Salaried and self-employed individuals can also apply for these loans
    • The minimum age requirement for this loan is that you should be at least 21 years of age. The maximum age is limited to your retirement age. This means that the loan tenure cannot exceed your retirement age. For salaried individuals the age limit is 65 years for most banks.
    • Even companies can apply for this loan provided they have been in operation for a predefined minimum period.
    • Companies applying for this loan may also be required to be in a position where they have been making profits in the last few years.
    • All the owners of the property will have to be co-applicants for the loan.

    Documentation Required for Home Renovation Loan

    The documents that will be required for you to be able to avail the home improvement loan will depend on the finance house that you approach. Some of the common documents needed are:

    • Application form for the loan with passport size photographs.
    • Latest Salary Statements and Form 16.
    • Bank statements covering the last 6 months.
    • IT/ITAO documents (for businessmen and professionals)
    • All original title deeds of the property.
    • A quotation from your architect on the estimated cost.
    • An address proof and KYC.(Aadhar card, license, passports, ration cards, etc.
    • Pan cards, drivers licenses, Aadhar cards and passports can also be submitted as proof of age, if required.
    • Some banks may require that you take out an insurance policy on the house to cover the loan amount and name them the sole beneficiaries for it. In such cases you will have to provide the policy documents too.

    These are the most common documents that most financiers/banks will ask for. It may be so that in some cases you will have to submit just a few of these documents while in others, more documents may be requested. Such request are made at the bank's discretion and change from one bank to the other.

    Home Improvement Loan Interest Rates

    When it comes to interest rates, most of the banks and finance houses offer you two choices. The first is a fixed rate of interest and the other is floating interest rate.

    • Fixed interest rate

      The fixed interest rate is when the rate of interest is fixed before the loan is approved. This interest rate will remain fixed for the duration of the loan. The general band for this interest is between 9% per annum and 12.5% per annum. The exact rate, of course, will depend on the bank you take the loan from. The interest rate may also change depending on your employment situation. Salaried individuals tend to get offered lower interest rates as compared to self-employed applicants.

    • Floating interest rates

      The floating interest rate is an interest rate that is linked to the prime lending of the bank. This prime lending rate is affected by the repo rate (the rate at which the banks borrow money from the central bank) and can fluctuate. The advantage of the floating interest rate is that it tends to be a bit lower than the fixed interest rates. It does not generally exceed the fixed interest rates and even if it does, it generally does so for a short period.

    If your loan comes with a fixed interest rate and you wish to switch to a floating interest rate, then you can do so by paying a fee. The option is generally provided at the discretion of the bank.

    Home Renovation Loan FAQs

    Q. What is the loan amount that I can take?

    A. The amount that you can borrow will depend on the banks policy. Some banks will offer up to 90% while others may offer to cover 100% of the cost of renovation.

    Q. Are there any income requirements for these loans?

    A. Yes. Each bank has its own income requirement which are specific to salaried and self-employed applicants.

    Q. If I have taken a loan with a fixed rate of interest, can I switch to a floating interest rate?

    A. Yes. Some banks do allow you to switch between fixed and floating interest rates. However such switching may require you to pay a fee.

    Q. I am 60 years old. Can I take this loan for 15 years?

    A. No you cannot because most banks consider the retirement age to be between 65 years and 70 years and your loan tenure cannot exceed the retirement age.

    Q. Is there a processing fee for these loans?

    A. Yes. These loans do come with processing fees. The exact amount will depend on the bank providing the loan.

    Q. When do I pay the processing fee?

    A. In most cases, you will have to pay the processing fee while applying for the loan. The payment can be made with a cheque which is to be submitted when you submit all the other documents for the loan.

    Q. What happens if my house is destroyed or damaged by a natural calamity while the loan is still being paid back?

    A. There is no doubt that in such an instance you will be at a disadvantage since the repayment of the loan will have to continue and youll need to rebuild/repair your house. It is best to use an insurance policy to cover such eventualities.

    Q. How can I ensure that the loan is repaid even if something were to happen to me?

    A. There are many insurance products that will help you cover the outstanding loan amounts so that your loans dont become a financial burden on your family. It would be best to take one of these insurance policies to cover the loan.

    Q. Is prepayment allowed for home renovation loans?

    A. Yes. However the terms and conditions governing prepayments will differ from one bank to the next so it would be best to consult your bank before deciding on prepayments.

    Q. I dont own the house but want to be a co-applicant for the loan. Is that possible?

    A. Yes. Co-applicants for a loan need not be own the house for these loans however, all co-owners need to be co-applicants for this loan.


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