While interest rates are rising on loans, now you can get a higher loan amount sanctioned for home improvement.
In a circular released on Tuesday, the Reserve Bank of India (RBI) has stated that the ceiling on loans for carrying out repairs, additions or alterations to their house had now been revised to Rs 10 lakh in metropolitan centres (those centres with population of 10 lakh and above) and Rs 6 lakh in other centres. The circular is meant for all primary (urban) co-operative banks.
The limit has been revised from the earlier Rs 2 lakh in rural and semi-urban areas and Rs 5 lakh in urban areas, which was notified by RBI on September 13, 2012.
Home improvement loans are used to fund home repair or additions, which could improve your home’s retail value and aesthetic appeal. For instance, you could avail of a home improvement loan to remodel your kitchen or repaint the outside walls of your house.
Features of Home Improvement Loans
Interest rates: The interest rates of home renovation loans are usually the same or bit higher than those for regular home loans.
Most home improvement loans are unsecured loans, meaning they don’t require any form of collateral. Instead, the lender assesses your true eligibility by reviewing your credit score and income. The interest rate on these ranges from 9.6 per cent to 12.99 per cent, according to data provided by loan aggregator Paisabazaar.com. These loans are offered by banks such as State Bank of India, HDFC Bank, ICICI Bank, Bajaj Finserv and Yes Bank.
Some lenders also offer secured home improvement loans, which come with lower interest rates of 6.5-7 per cent. Some of the banks that offer these loans are ICICI Bank, HDFC Bank, Axis Bank, State Bank of India and Citibank.
Loan amount: In case of home renovation and improvement loans, the amount can go up to 100 per cent of the renovation or improvement estimate. “However, the loan amount cannot exceed the caps put on home loan LTV (lon-to-value) ratios set by the Reserve Bank of India. For example, for loan amounts of Rs 30 lakh, the (home improvement) loan amount cannot exceed 90 per cent of the property value. For loan amounts of Rs 30 lakh to Rs 75 lakh, the LTV ratio cannot exceed 80 per cent. The LTV ratio cannot exceed 75 per cent for loan amounts greater than Rs 75 lakh,” says Ratan Chaudhary, head of home loans, Paisabazaar.com.
However, the final LTV ratio offered by the lender would depend on the applicant’s credit profile and property features.
Loan tenure: The tenures of home renovation loans can go up to 30 years. “Most lenders usually require the home renovation loan to be completely repaid by the time their borrowers complete 70 years of age,” says Chaudhary.
Tax benefits: Interest payment on home renovation loans also offer tax deduction benefit under Section 24b of the Income-tax Act, 1961. Interest payment up to Rs 30,000 is deductible per financial year.