A house is one of those assets we buy for a lifetime. Once we have one of our own, it’s less likely that we go for another as we tend to develop a kind of attachment with our first home. However, with little changes every now and then we try to enhance our interiors and make the home more appealing.
But after a certain point, all those minor changes we have been trying all these years including the new wall colours, creative wallpapers, furniture additions and similar things become monotonous.
With changing trends and evolving interiors our urge to upgrade our homes to the next level builds up over the years.
Home upgrades, unlike the small changes or additions, would cost you more depending upon the change you’re opting for. It could be either cosmetic, functional or sometimes both. But when change becomes imperative, compromising on the budget is not a good idea.
In such a scenario, you can opt for a home improvement loan to redesign your house and make it look all new. But is it really a better option compared to all other alternatives available? Let’s drill down into the topic further to come to a logical conclusion.
Common features of a home improvement loan
Home improvement loan or home renovation loan is not something new. Many banks and financial institutions have been offering the loans as part of their Home Loan products portfolio.
Who can apply: One criteria that is a must to apply for a home improvement loan is – you should be a house owner, either self-employed or a salaried individual. You can opt for the loan irrespective of your existing home loan. The loan can be availed from the same bank, which provided you the home loan or from a new bank.
What kind of upgrades are covered under the loan: The loan can be used to do any kind of renovations or upgrades including tiling, flooring, painting, repair, waterproofing, roofing, plumbing, false ceiling, furnishing, and all exterior upgrades.
Rate of interest: Home improvement loans are typically available at an interest rate ranging from 8.35% to 8.95% p.a. and are levied in two methods - adjustable rate and fixed rate.
Under the adjustable rate, the interest rate will be linked to the bank’s retail prime lending rate (RPLR) and hence will be revised accordingly. Any increase or decrease in the bank’s RPLR will directly impact the loan’s interest rate.
In the fixed rate method, the home loan interest rate will be fixed initially and the same will be applied throughout the tenure. Some banks also offer a mix of both the variants – for few years a fixed rate will be applied following which the loan will be automatically converted into an adjustable rate loan.
Repayment period: You are free to choose a repayment period for a maximum of 15 years depending on the bank’s terms. However, the tenure depends on various factors including the applicant’s age, age of the property, repayment schedule and other terms based on the bank’s norms.
Eligibility of funding: Applying for a home improvement loan from your existing home loan provider makes things favourable even in terms of receiving the maximum funding. Most banks offer 100% of the improvement estimate for the existing home loan customers, whereas the new customers will be eligible for 75%-90% of the renovation estimate depending on the loan amount and other factors.
These are the basic things you need to know before applying for home improvement loan.
Now let’s see the alternatives available for the home improvement loan and which one would be the best.
Alternatives for home improvement loan
The other loans which you can avail for renovating your home include top-up loan, personal loan and loan against property.
Top-up loan: The top-up loan option is available only for only those house owners who have an existing home loan. The loan can be availed after completing certain number of years of the existing home loan tenure, usually 3 to 6 years.
The interest rate on a top-up loan would typically be 1% to 2% more than the base home loan rate amounting to 11%-13% p.a. based on the bank’s terms. Applicants are eligible for a loan amount equivalent to 70% of the property value or even lesser based on the property value and the applicant’s repayment capability.
Well, compared to a home improvement loan, a top-up loan would definitely cost you more as the interest rates are little higher. Moreover, if you don’t have any existing home loan, you won’t be eligible for a top-up.
Personal loan: A personal loan is the most generic loan which can be used for anything and everything and hence can also be availed for your home renovation. However, as most of us are aware, as the loans do not require any kind of collateral, they attract high interest rates compared to all other loan products. Personal loan interest rates typically range from 15% to 14% p.a.
Further, the tenure for the loan is maximum five years. Other charges including the prepayment fee and processing fee which are also little higher compared to other loans. On the positive side, they are easy to get and require less documentation. However, all of this will be possible only when you’re eligible for one.
It’s so obvious that personal loan would burn a bigger hole in your pocket compared to the home improvement loan and a top-up loan.
Loan against property (LAP): This option is available to those who closed their home loans. Compared to a personal loan, the LAP offers better interest rates and tenures. However, you need to keep your home as collateral to avail the loan. During the tenure, you will not be able to take any other loan on your property again.
As you’re eligible to get 50% to 60% of the property’s market value as the loan amount, you can go for the loan if you need a lot of money for your renovation. For small fixtures, it’s not worth mortgaging your home.
Therefore, compared to the other options available in the market, the home improvement loans seem to be a better option. You can either avail it from your existing home loan provider or can go for another bank if it’s offering better interest rates.
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