Why Home Renovation Loan?
Your home is not just a liability to be serviced and a place to stay. It is also a long term asset that needs caring and tuning from time to time. The home is also a statement about your family to the outside world. That only means that you need to constantly spend on repair, renovations, painting, furnishing, fixtures etc. All these things cost a lot of money, so if you have a set of requirements in place, the best you can do is to go for a home renovation loan.
If you decide upon taking a loan to meet your home renovation needs, then there are two ways you can go ahead. First is availing a personal loan wherein you can use the loan amount for repairs, renovation, furniture, fixtures etc. Being a personal loan, this type of loan is unsecured.
On the other hand, the second option is getting a house renovation loan. A house renovation loan is the more attractive option as it is secured against your home ownership. The interest on such a loan is typically the same as that of a home loan, compared to the high rates of interest on personal loans.
You can use such a home renovation loan to alter, repair, and renovate the structure of your existing property, or even use it for external beautification. You also get concessional rates on such loans.
How to go about getting a home renovation loan?
You can understand the entire process flow of getting a house renovation loan in the following 7 steps.
- The first and foremost step is to decide the amount of home renovation loan you require. Don’t get too little and don’t stretch your limit because it is available. Set your target expenses and keep a provision of 10% to 15% for contingencies. It is better not to go beyond that limit. After all, it is a liability you need to service with your future funds.
- Look out for Pre-approved Offers. If you have an existing relationship with a bank as an account holder or borrower, based on your track record and income flows, the bank would give you a pre-approved limits. Such pre-approved limits are quick and also offer concessional rates.
- While it is advisable to have the home renovation loan with the same bank that has given you a home loan, it is not essential. Today, there are agnostic digital platforms wherein you can compare rates across various banks and NBFCs and then take a call. You can spend time and try to get the best bargain.
- Check out your eligibility for your home renovation loan. For example, if you are already having a tough time meeting your EMIs there is no point pushing yourself into another loan. It only worsens your credit track record. Avoid making too many requests for the house renovation loan online, as it impacts your CIBIL score.
- In a home renovation loan, flexibility matters a lot. For instance, you should be able to get facilities like bullet repayment, balloon repayment, etc. to manage cash flows better. Also, try and bargain for zero prepayment penalty after the mandatory six months, so that you can easily close the loan when you have surplus cash on hand.
- Read the fine print of the home renovation loan agreement. Look for the rate of interest, hidden charges, prepayment charges, administrative charges billed etc. All these can substantially add to your overall costs.
- Finally, have a repayment plan. Today, one thing that is offered on house renovation loan is 3 month moratorium on loan repayment. Your repayment only starts after that. Use these time to work out how you are going to repay this home renovation loan without straining your financial resources. This also gives you planning time.
Having seen the steps to a home renovation loan, let us look at the factors to consider while taking on a house renovation loan.
Factors to decide on home renovation loan provider
Here are some of the factors that you must consider before finalizing your financier for the house renovation loan.
- The rate of interest should be attractive and also competitive with the market rate of interest. Compare and select the best rate of interest available.
- Prefer the loan that can be given out with minimal documentation.
- Look for flexible funding, immediate sanction, and instant disbursal. In the current market, you do not have to wait for too long. This is a borrower’s market after all.
- Finally, avoid the loan if the lender is either insisting on collateral or if they are insisting on a guarantor. You do not need either for an unsecured personal loan.
Home renovation loans or home improvement loans are a great route for people seeking finance to refurbish, repair or upgrade their house. You have the option of going the personal loan route or taking a secured loan. Each offer you unique opportunities and risks, the choice is yours and it depends on your unique needs and capacity as a borrower. You can actually get the best deal if you spend some time on it!