Best Home Renovation Loans Of 2023 – Forbes Advisor INDIA

Lending institutions provide up to 90% of the project cost as home renovation loans, which are acquired for repairs or expansion of an existing property. Some banks run a different scheme for renovation while others have merged with the home loan scheme, altogether. Regardless, loans taken for renovation differ from home loans for purchase of property in terms of repayment tenure, margin, and moratorium period.

Forbes Advisor India has put together the best home renovation loan schemes provided by public and private sector banks, applicable rates, features, and other criteria to help you get the best deal.

Interest rate and charges on home renovation loans are accurate as of April 27, 2023.

Features of Home Renovation Loan

Home renovation loan is provided to salaried and self-employed individuals holding Indian citizenship. Such citizens can be either working in India or abroad, and aged between 18 to 21 years and maximum up to 70 years. Applicants should be earning a minimum INR 3 lakh per annum, and employed or in business for at least two years.

Here are the features of a home renovation loan. 

Loan Amount

Depending on banks, borrowers may apply for a home renovation loan starting from INR 25,000 up to INR 50 lakh. Remember, most banks provide 70% to 90% of the loan amount for home renovation, which is subject to eligibility criteria, particularly the borrower’s income, margin, or LTV ratio. 

Margin

Depending on loans applied with or without security, or applied with  guarantor or co-applicant, as well as repayment tenure, banks charge 15% to 30% of the project cost as margin.

Repayment Tenure

Your relationship with the bank matters. The amount and repayment capacity on home renovation loans have a tenure up to 15 years, including a moratorium period, and up to 20 years without a moratorium period.

Moratorium Period

Home renovation loans come with a moratorium period starting three to six months.

Concession on Interest Rate

Most banks provide women borrowers 0.05% to 0.10% concession on interest rate provided that the house is owned or jointly owned by a female borrower.

Some banks also provide a concession up to 0.10% for renovating a green building.

Processing fee

Home renovation loans come with a processing fee, starting 0.25% to 3% of the loan amount. However, some banks have waived this fee for borrowers working in a government establishment.

Pre-closure charges

Nil on floating rate of interest, and up to 4% on fixed rate of interest on home renovation loans.

Credit score

Credit score is among the most important criteria. Banks consider individuals with a credit score above 700 as good. However, applicants with credit score below 600, or nil credit score, can also avail of home renovation loans depending on your relationship with the bank.

Related: Best Alternative Loans For Bad Credit Score

Security or collateral

Unlike home loans taken for construction or buying a plot of land, renovation loans do not necessarily require security. That said, for a higher loan value, banks may ask you to pledge a security as collateral which is usually the hypothecation of your property. 

Security can also be pledged against premiums paid to Life Insurance Corporation (LIC), National Savings Certificate (LIC), Kisan Vikas Patra (KVP), mutual funds. Such secured loans attract lower interest rates, and will require applicants to produce assets and liabilities statements to the bank. 

Related: What Is A Secured Loan And How To Get One?

Guarantor

Optional. A guarantor is a person who guarantees to make the payments if a primary applicant fails to pay the EMI. Such a person will have to submit documents related to his or her proof of income, address, and identity, as detailed below.

Co-applicant

Optional. However, loans acquired with a co-applicant attract a lower rate of interest. A co-applicant should be above 18 years of age to be eligible, and has to submit his or her proof of income, address, and identity.

Insurance cover

It is advised to add insurance cover on home renovation loans, and such an insurance is similar to the home loan scheme. Borrowers will have to pay the premium amount directly to the insurance provider during the tenure of the loan.

Best Home Renovation Loan and Their Interest Rates

Rate of interest on home renovation loans, like in any other retail loans, is crucial to determine the repayment capacity of the borrower. Banks usually provide a floating rate of interest on home loans when the equated monthly installment (EMI) begins, while fixed rates are also provided by some banks.

Some banks offer a separate scheme for renovation, while others have merged it altogether with the home loan scheme.

Here is the latest rate of interest on home renovation loans provided to both salaried and self-employed individuals without a discount. Remember, the rate of interest varies as per loan tenure, as well as loans availed against collateral, or with a co-applicant, etc.

Related: How To Calculate Home Loan EMI.

Checklist of Documents Required to Apply for Home Renovation Loan

To get a home renovation loan, relevant documents have to be submitted as per lender’s requirements. This will help lenders to assess credentials of an applicant, or guarantor, or co-applicant to obtain a loan. Any nonchalance on submitting documents can delay, or even reject your loan application.

Here’s the checklist of documents that have to be submitted, along with a duly filled loan application form.

Home Renovation Loan Application Process

Applicants should at first get an estimation of the cost required for home renovation, and banks may ask you to produce its proof. Ideally, the bank with whom an applicant has a savings account, or fixed deposits, is approached for acquiring a home renovation loan as your relationship with your lender matters on negotiating rates and other eligibility factors.

However, it is suggested to shop around eligibility, features, rates, and charges on home renovation loans (like mentioned above) provided by other financial institutions. Lenders also provide home loan calculators to give you an idea on how your EMI looks like for a specified loan amount and tenure. Avoid filing multiple loan applications as it hampers your credit score. 

Read the fine print, or terms and conditions on the application form, which are readily available on the lender’s official website. Once you make a formal loan application, banks will assess your documents and respond within a week or two. 

Frequently Asked Questions (FAQs)