Going To Borrow A Home Improvement Loan? Take Note

When a house is bought, a dream is realised.  From here on, the proud owner will have to constantly strive to ensure that the reality remains as sweet as the dream was. To put it more plainly, sweat will have to be broken to turn this house into a home, and making it better every day. There is no way you would allow your precious property to lose its sheen. For this reason precisely, you may have to approach a bank for a home improvement loan. Considering there are also tax benefits if you avail of a home improvement loan, it only makes more sense to go for the same.

Within the Rs 2-lakh deduction limit that a borrower enjoys against the interest payments on home loans, Rs 30,000 can be claimed as deduction against home improvement loan interest from the taxable income in a financial year under Section 24 (b) of the Income Tax Act.

While you prepare to apply for the home improvement loan, here are certain points you need to know.

Should you find a new lender?

The banking sector is busy making loans cheaper for home buyers. With the RBI bringing the repo rate down to 4 per cent, banks are currently offering home improvement loans below 7 per cent interest. At HDFC, for instance, a woman borrower will be charged an interest of 6.95 for a home improvement loan of up to Rs 30 lakh.

Amid a demand slowdown, competition is so stiff that financial institutions announce new and better offers every day to claim more borrowers. This may get you thinking, should I go to another bank which is offering the home improvement loan at a lower rate? The rate offered by my current bank is comparatively higher. While there could be merits in going with a new lender, you need to be mindful of the fact that:

You application will be treated as new: It would be like applying for a new loan. This would mean you will have to go with all the formalities all over again. Because there is a certain formal process that will unfold, the time taken in the loan approval may be longer in case you go with a new lender.

Processing free: As it true of all home loans, applying for home improvement loan will also involve payment of a processing fee. This could currently range between 0.20-0.50 per cent of the loan amount.

NOC from current bank: Along with your home improvement loan application, you will have to submit a no-objection certificate from your existing lender. You will have to consult your old lender and obtain a certain no-objection certificate from it.

Property appraisal: Like it did while sanctioning the home loan, the bank will send an appraisal team to inspect the premises. Based on their feedback, the bank may or may not decide to grant you the amount you are seeking.Many factors are kept in mind before sanctioning a home improvement loan. For instance, the bank may reject your application if the age of the property or the applicant exceeds a certain limit. An applicant in the age bracket of 60-65, for instance, might find it difficult to get a loan. Banks also follow a standard practice and typically do not issue home improvement loans for properties older than 35 years. The repayment tenure is generally fixed at the highest limit of 15 years. Also, in case you plan to make certain structural changes in the structure, banks may not warm up to you to provide a home improvement loan.

Floating interest rate: Home improvement loans are generally issued on a floating rate of interest. You could negotiate with your bank and get it to provide you the loan at a fixed rate, too. However, the bank will always have the freedom to tweak the spread and change the rate. It would be a mistake to think that the fixed interest rate is actually fixed.

Also Read: 10 Types Of Home Loans Every Homebuyer Should Know