Every real estate needs regular maintenance to stay in proper condition. Mainly, ancestral residences need considerable maintenance due to deterioration with time. At times, repairing or refurbishing homes can be quite an expensive affair.
There are two alternatives that one can avail for home improvement.
- One could go for a Personal Loan for home renovation.
- For those who already have an existing home loan, they could go for a top-up on their loans.
But, one might as well ask, what is the difference between a home loan and a home renovation loan?
The main distinction between them is the end use. While, loans for home improvement are used for renovations, home loans are primarily meant for home acquisition. However, home loans can also be used for residential repairs. This is the main difference between a home loan and a Personal Loan for home renovation.
Apart from this, there are a few other points to distinguish between the two loans:
- Amount granted
For a home loan, NBFCs offer an amount of up to Rs. 3.5 crore. A Home Renovation Loan on the other hand, allows applicants to have access to an amount up to Rs. 25 lakh. This difference in amount sanctioned means that home renovation loans can finance minor residential improvements. On the other hand, home loans are used to buy a new property.
- Loan Term
A home renovation loan is a type of Personal Loan. Hence, it has a tenure of 12-60 months. A home loan can be availed for more extended time periods.
- Interest rates
Personal Loans for home renovation have fixed interest rates. Interest rates on home loans can either be fixed or floating.
Further, the interest rate on a home improvement loan is higher as compared to a home loan. This is mainly because a home loan is a type of secured loan where the applicant needs to mortgage the home with the lender to avail the loan.
A home improvement loan doesn’t require any security to be kept as collateral with the lenders. A home loan on the other hand, is a secured loan that holds the property as a security with the financers.
Attachment of security leads to a difference between the home loan and Personal Loan interest rates. Since lenders have collaterals to ensure security hence, the interest rates go lower. On the other hand, interest rates on home improvement loans are higher because, such loans are unsecured.
- Tax benefits
Applicants can avail tax benefits on both home loans and home improvement loans. Under Section 24 of the Income Tax Act, the interest paid on a home improvement loan, is tax deductible up to Rs. 30,000 per year. But there are no tax deductions available on the principal component of such a loan.
For a home loan, on the other hand, tax benefits are allowed for interest as well as the principal amount. The interest portion of the EMI can be claimed as a deduction under Section 24(B), up to a maximum of Rs. 2 Lakh. The principal part of the EMI can be allowed as a deduction under Section 80(C), up to Rs. 1.5 Lakh.
Both options can be considered viable for financing home improvements. The final choice for a borrower between a home loan and a home improvement loan rests on the following criteria:
- The extent of renovations required.
- Repayment capacity of the borrower.
Borrowers can also base their decision on the tenure for which they wish to avail the loan. Plus, they can calculate the EMIs payable for various tenures and amounts using an Loan calculator. They can choose their preference based on the ultimate EMI amounts reflected therein.
A Personal Loan eligibility of a borrower considers the applicant’s CIBIL score as an essential criterion. Lenders prefer borrowers to have a credit score of over 750. For a secured home loan, this criterion is much relaxed.
The urgency with which borrowers require the loan also determines their choice. In case, they need a loan on short notice, they can always apply for a Personal Loan for home improvement.