If you’ve to undertake repairs or renovations to your home, you need financing. Whether you need to repair your old house or want to make some renovations in your newly purchased apartment, Home Improvement Loans are your best bet. But there are also tax benefits on Personal Loan for home improvement that you can get.
A Home Improvement Loan can be used for all construction and renovation work. This includes extending a room, flooring, all kinds of plumbing or exterior elevation work, painting, or getting a balcony. However, furnishing your kitchen with consumer durables or buying furniture for the living room can’t be done with a Home Improvement loan.
Eligibility for Loan
If you own a house and want to carry out extension or renovation work, you’re eligible for a Home Improvement loan. You can get a Renovation Loan from the same lender who gave you a Housing Loan.
You need to give a rough estimate of the renovation work. The lender will give you a loan subject to a maximum of 80% of LTV. If you apply to the same lender who gave you a Housing Loan, then the sanctioned loan plus the Home Improvement Loan is restricted to 85% of property value.
If you take a Home Improvement Loan from a new lender, all procedures and formalities applicable to home loans apply to Home Improvement Loans as well. Loan processing charges range from 0.5% to 0.75%.
Home Improvement Loan Vs Personal Loan
A Personal loan is available easily. There’s no security needed. Personal loan processing needs very minimum documentation. It also gives you the freedom to use the funds as you need. A Personal Loan for home improvement is you’d want to get.
Personal loan interest rates are pretty high, ranging from 16% to 30%. If you’re carrying out major repairs to your home, you’ll have to get a greater quantum of loan. In the end, you’ll have to pay a lot of interest.
On the other hand, Home Improvement Loans come cheap. In fact, in most cases, they’re given home loan interest rates. So, you’re better off by getting a Home Improvement Loan than a Personal Loan.
Tax benefits on Personal Loan for home improvement
Just as Home Loans are eligible for tax deduction, Home Improvement Loans also enjoy tax deductions. However, unlike Home Loans, where both the interest and principal qualify for deduction, only the interest paid on Home Improvement Loans are eligible for deduction.
Section 24B of the Income Tax Act, allows a deduction upto Rs.30,000. This is in respect to the interest paid on a Home Improvement Loan from your taxable income. Note that this limit is included in the overall interest deduction of Rs. 2 lakhs.
Here is an example: Suppose your Housing Loan interest sums upto Rs.1.8 lakhs a year. You claim Rs.30,000 as interest on a Home Improvement Loan. As per the provisions of Section 24B of the Income Tax Act, your interest deduction is restricted to only Rs.2 lakhs.
Note that the principal portion of the Home Improvement Loan doesn’t qualify for deduction.