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Repair and Renovation Under Home Loan: Overview

Housing credit provides customised funding solutions to support a wide array of home needs such as buying a new property, constructing a house, renovating or repairing an existing property and so on. Some lenders offer loans under the broad category of Home Loans while other lenders extend separate loans for specific purposes such as Home Loans, renovation loans, construction loans, etc.

So if you seek to repair, renovate or alter the structure of your existing property; home improvement or renovation loans provide the ideal credit solution. These loans come with longer repayment tenors and attractive rates of interest. Similarly, one may also opt for a regular Home Loan to undertake extensive home repairs and renovation.

Maximum Limit for Repair and Renovation under Home Loans _WC

Maximum Limit for Repair and Renovation under Home Loans

The Reserve Bank of India has now made it even more convenient for borrowers to receive sanctions of a higher loan amount to meet their home improvement requirements. The ceiling on loans for carrying out repairs, additions, expansions or alterations to their existing house structures has been revised to Rs. 10 lakh in metropolitan cities and Rs. 6 lakh in other areas. Metro cities are designated as centres with a population of 10 lakh and above. The RBI has increased this limit from the previous cap of Rs. 2 lakh in rural and semi-urban areas and Rs. 5 lakh in urban regions.

Distinguishing Features of a Home Loan for Repair and Renovation

Distinguishing Features of a Home Loan for Repair and Renovation 

A housing loan for repairs and renovation may be obtained to fund home alterations or makeovers, which can enhance your property’s retail value and aesthetic appeal. For example, you may avail of a loan to remodel your kitchen, carry out extensive repairs, plumbing, carpentry work or even repaint the interior and exterior walls of your residence. Some of the key features of a Home Loan for renovation include the following:

Competitive Rates of Interest

Generally, the interest rates offered on a Home Loan for expansion, addition or refurbishing remain the same or slightly higher than regular house loan rates. Some banks and lending institutions tender secured loans such as home improvement loans or the typical housing loan for repair and renovation, which attract lower interest rates starting from 8.50%* p.a. for salaried applicants, basis eligibility. Due to their secured nature, these loans are much easier to avail of and incur modest interest rates and flexible tenors.

Home improvement loans are also proffered in the form of unsecured loans, meaning they do not need any sort of collateral or security for obtaining the requisite funds. Instead, the lender will evaluate your loan eligibility by reviewing your credit score and income. Hence, the parameters could be stringent and you are likely to receive higher rates of interest as compared to the secured home improvement credit plans.

Higher Loan Principal Amount

Loan applicants with flawless credit records and excellent credit scores over 750 can enjoy attractive loan deals. They may obtain approvals of higher loan amounts at competitive Home Loan interest rates and lengthy tenors resulting in affordable EMIs. A Home Loan for renovation and repair can accord you principal amounts up to 100% of the renovation or improvement estimate cost. But it can never exceed the cap put on Home Loan LTV or Loan-to-Value ratio fixed by the RBI, which determines the actual sum that may be sanctioned to a borrower.

Calculate the Maximum Limit for Repair and Renovation under Home Loans

Calculate the Maximum Limit for Repair and Renovation under Home Loans

Lenders normally compute the maximum loan amount for renovations and repairs under a Home Loan based on LTV regulations as follows:

  • In case of loan amounts within Rs. 30 lakh, borrowers can expect loan approvals up to 90% of the property value
  • For a loan principal between Rs. 30 lakh to Rs. 75 lakh, the LTV is limited to 80% of the house cost
  • If you require loan amounts in excess of Rs. 75 lakh, your LTV cannot go beyond 75% of the property’s market price

All things considered, the final LTV ratio offered by lenders will be decided by the applicant’s credit profile, property features and a diverse combination of other factors.

Flexible and Customised Loan Repayment Tenor_WC

Flexible and Customised Loan Repayment Tenor

Home renovation loans of a secured nature proffer extended tenors and tailored repayment options. Thus, a housing loan for repair and renovation may easily extend up to 40 years, making it easier for borrowers to repay the loan at a comfortable pace, bearing in mind their monetary constraints.

However, an unsecured home renovation loan, which works very much like a personal loan, comes with shorter repayment tenors. As a result, borrowers might find it difficult to handle the repayments, especially if they are unable to avail loans at favourable interest rates and terms.

All the same, lenders normally require the loan to be repaid by the time the borrowers reach the age of 70 years.

Tax Benefits on Home Loans for Renovation and Repair

Tax Benefits on Home Loans for Renovation and Repair

The money you avail as loan for conducting home improvement activities; inclusive of repairs, painting and plumbing work attracts tax exemptions. The interest variable of your loan ensures tax deductions under Section 24 (b) of the Income Tax Act. Eligible borrowers may claim tax relief up to Rs. 30,000 annually towards home renovations. The rebate forms a part of the overall tax deductions up to Rs. 2 lakh on the housing loan interest paid in a single financial year.

This concession applies to self-occupied properties only. Improvements made in a let-out house are not tax-exempt. Moreover, you cannot claim any tax benefits under Section 80C provisions on the principal repayment of your loan.

Balance Transfer Facility

Existing renovation loan borrowers can exercise the loan balance transfer option whereby they may shift their current outstanding loan to another lender for smaller interest rates and better deals. This is usually done to reduce the overall interest cost. However, before consenting to a loan transfer request, the new lender will first conduct a detailed credit risk assessment of the applicant.

Nil Pre-Payment Charges on Floating Rate Loans

If an individual borrower secures a housing loan at floating interest rates, lenders cannot levy any charges when they pre-pay or foreclose their debt before the end of the agreed tenor. But in case you take up a fixed rate loan, lenders may charge you nominal to nil pre-payment fees. Also, there may be certain other charges and fees associated with a house loan for renovation and repair. Verify these prices right at the beginning to include them in your total credit cost.

A Home Loan availed for house renovation and repair may help you cover multiple expenses pertaining to a home upgrade or makeover. If you wish to secure this loan, look up loan deals from other lenders in the market and match their Home Loan eligibility criteria. You may compare their interest rates and offerings using a Home Loan calculator. Just input the values of your preferred loan amount, the rate of interest extended by each lender and the desired loan tenor. This user-friendly tool will provide accurate results in seconds enabling you to pick the ideal loan and also plan your cash flow efficiently.

*Terms and Conditions apply.

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