Home Renovation Loan

Home Renovation Loan, also known as Home Improvement Loan, is offered to consumers seeking finance for upgrading, refurbishing or repairing their house property. Both existing home loan borrowers and new customers avail home renovation loans. Most banks, non-banking financial companies (NBFCs) and housing financial companies (HFCs) provide this facility either through their regular home loan product or as a separate offering within the broader category of home loans.

Features of Home Renovation Loan

Interest rates

Lenders usually provide home improvement loans at floating interest rates. The interest rate for a loan applicant availing a home renovation loan depends on several factors including their monthly income, credit score, loan amount, employer’s profile and occupation profile. Home renovation loan interest rates are usually the same or slightly higher than the interest rates offered for regular home loans.

Name of Lender	Up to Rs. 30 Lakh	Above Rs. 30 Lakh to Rs. 75 Lakh	Above Rs. 75 Lakh
SBI	8.40% - 10.15% p.a.	8.40% - 10.05% p.a.	8.40% - 10.05% p.a.
HDFC Bank Limited	8.35% p.a. onwards	8.35% p.a. onwards	8.35% p.a. onwards
LIC Housing Finance	8.40% – 10.35% p.a.	8.40% – 10.55% p.a.	8.40% – 10.75% p.a.
ICICI Bank	8.75% p.a. onwards	8.75% p.a. onwards	8.75% p.a. onwards
Kotak Mahindra Bank	8.70% p.a. onwards	8.70% p.a. onwards	8.70% p.a. onwards
PNB Housing Finance	8.50% - 14.50% p.a.	8.50% - 14.50% p.a.	8.50%-11.45% p.a.
Punjab National Bank	8.45%-10.25% p.a.	8.40%-10.15% p.a.	8.40%-10.15% p.a.
Bank of Baroda	8.40% - 10.65% p.a.	8.40% - 10.65% p.a.	8.40% - 10.90% p.a.
Union Bank of India	8.40% – 10.80% p.a.	8.40% – 10.95% p.a.	8.40% – 10.95% p.a.
IDFC First Bank	8.75% p.a. onwards	8.75% p.a. onwards	8.75% p.a. onwards
L&T Finance Limited	8.60% p.a. onwards	8.60% p.a. onwards	8.60% p.a. onwards
Bajaj Housing Finance	8.50% p.a. onwards	8.50% p.a. onwards	8.50% p.a. onwards
Tata Capital Housing Finance	8.70% p.a. onwards	8.70% p.a. onwards	8.70% p.a. onwards
Federal Bank	8.80% p.a. onwards	8.80% p.a. onwards	8.80% p.a. onwards

Note: Interest rates as on 27th October 2023

Loan-to-value ratio

When it comes to home renovation loans, the LTV ratio is the total proportion of a property’s value that can be financed through the home improvement loan. Lenders usually offer up to 100% of the renovation estimate, subject to the condition that the LTV ratio offered for home renovation loan does not exceed the cap on the home loan LTV ratios set by the RBI. The breakup of the Loan amount and the corresponding LTV ratio is provided below:

Loan Amount	LTV Ratio
Up to Rs. 30 lakhs	Up to 100% of the renovation estimate subject to the LTV ratio not exceeding 90%
Rs. 30.01 lakhs to Rs. 75 lakhs	Up to 100% of the renovation estimate subject to the LTV ratio not exceeding 80%
Above Rs. 75 lakhs	Up to 100% of the renovation estimate subject to the LTV ratio not exceeding 75%

Banks, NBFCs and HFCs undertake a credit risk assessment to ascertain the final LTV ratio for a loan applicant. The factors considered during the credit risk assessment process include the borrower’s credit profile and repayment capacity, market value of the property, etc.

Loan Tenure

Lenders usually provide home renovation loans for tenures of up to 20 years with some lenders offering loan tenures extending up to 30 years. Most banks/HFCs offering the home renovation/improvement facility under their regular home loan product provide repayment tenures of up to 30 years.

Lenders take into account the repayment capacity of an applicant while deciding their loan tenure. They usually require loan applicants to restrict their monthly EMI contribution, including that of their proposed loan, to be within 50-60% of their net monthly income. Loan applicants availing home renovation loans can use the Paisabazaar home loan EMI calculator to ascertain the both the loan tenures and EMIs for their home renovation loans depending upon their repayment capacity.

Tax benefits

Home renovation loan borrowers can claim interest repaid of up to Rs 30,000 per financial year as tax deductions under Section 24(b).

Availability of Balance Transfer Facility

Existing borrowers of a home renovation loan can exercise the balance transfer option wherein they can shift their outstanding loan to another lender at a lower interest rate. The aim is to reduce their overall interest cost. Note that the new lender will conduct a detailed credit risk assessment of the applicant before approving his balance transfer request.

Processing Fees and Prepayment Charges

Most Banks, NBFCs and HFCs charge processing fees from both new and existing borrowers for availing a home improvement loan. The processing fees for a home renovation loan generally ranges between 0.25% and 2.00% of the total loan amount. RBI has laid down strict guidelines to prevent lenders from charging prepayment fees on floating rate loans. However, lenders have the discretion to either charge or completely waive off the prepayment fees on fixed rate loans.

Eligibility Criteria for availing Home Improvement Loan

• Resident Indians are eligible to apply for a home improvement loan. Some lenders also offer home renovation loan to NRIs
• Age: Lenders generally offer Home Renovation Loans to fresh loan applicants or existing borrowers (in case of balance transfer) aged 18 years and older. However, lenders usually require their home renovation loans to be repaid by the time the borrower is 70 years old.
• Both salaried and self-employed individuals/business owners can apply for a home improvement loan
• Borrowers can also enhance the eligibility of their home loan by adding co-borrower(s), selecting a longer loan tenure or providing an additional source of income
• Credit Score: Loan applicants having a credit score of 750 and above stand a higher chance of availing a home improvement loan. Many lenders also provide home improvement loans at lower interest rates for applicants with higher credit scores.

Individual lenders might also look at other factors like an applicant’s income, liabilities, assets owned, work experience (for salaried) and business continuity (for business owners), etc. while ascertaining the eligibility of a home improvement loan applicant.

Documents Required for Home Renovation Loan

The documentation process for a home renovation loan is similar to documentation for regular home loans. Following are some of the main documents required in order to apply for a home renovation loan:

• Duly filled application form
• Age proof
• Income proof
• Proof of employment/business
• Address proof
• Property documents
• Estimated repair cost quotation

Note: This list is non-exhaustive. Additional documents may be required based on the applicant’s profile and the provider’s requirement.