Want to do some work on your home but stuck for cash? Not to worry, banks and housing finance companies, flush with funds, are more than ready to finance your needs where your home is concerned.
Typically banks and HFCs extend what is called the 'home improvement loan' -- only to their home loan customers. The loan is given against your mortgage with absolutely no margin (in most cases).
It is said that some financiers do not even bother to monitor the end use of the loan sanctioned and treat it practically as a personal loan product, while some others insist on a physical check of the work done.
Home improvement loans are typically extended towards extending a room, building a balcony, painting, flooring, plumbing, making of grills and even beautification work.
Financiers usually shy away from financing furniture, since they say they do not want to finance consumer durables. But if it is a built-in-wardrobe or a kitchen cabinet that you have in mind, the moolah should be no problem.
The loan works like this: the borrower will have to work out a cost estimate of the work intended to be done and give it to the financier, who will take a quotation from the architect/contractor to verify the estimate submitted.
The money is released at the rate of the construction work to the contractor to whom it is due. In some cases the money is given to the borrower but only if he/she produces the receipts proving that an equivalent amount has been paid to the contractor.
There is an income tax benefit on the interest component of the home improvement loan up to Rs 30,000 under Section 24 of the Income Tax Act.
In order to reap this benefit, the interest amount of the home improvement loan plus the interest amount of the home loan should be within Rs 150,000 per annum.
In the case of a home improvement loan, there is no tax rebate on the principal amount unlike in the case of a home loan.
According to bankers, about 15-20 per cent of home loan customers go in for a home improvement loan. Banks are ready to finance anything that increases the life of the house.
"About 99 per cent of the time, the borrower goes in for a home improvement loan that is the same tenor of the home loan.
Otherwise if the home loan is for 10 years and the top up for 15 years, the security i.e., the mortgage will be pledged to the lender for an additional 5 years," said Rajiv Sabharwal, chief operating officer, ICICI Home Finance Company Ltd.
Lenders typically say that there is no limit on how much they sanction under the home improvement loan but if the loan amount goes above 20-25 per cent of the home loan amount itself, bankers may turn a tad wary on what kind of improvement is happening.
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