Home renovation and finance: house renovation and financial implications

Many home owners renovate the house at some stage. Renovation may include repairs, expansion, or remodelling of the home, often an expensive process. While finance is easily available for renovation it is essential to plan the work well in advance and work out your budget before researching finance options.

Home repairs include a whole gamut of civil works: painting, replastering, waterproofing, sanitary fittings, changing floors, building a water storage tank, remodelling electrical connections and so on. Whatever be the exact nature of the work, it is essential to hire an experienced contractor for the job, preferably somebody referred to you by a satisfied customer. The cost of repairs varies widely, depending on the nature and extent of work and the quality of materials used. Compare estimates from a number of contractors before making a choice. While most repairs do not require statutory permissions, for certain jobs such as plumbing or electrical works, it would help to have a blueprint or master plan of the existing plumbing/electrical lines.

Homeowners who require more space can extend their existing house, by adding rooms or remodelling unutilised space. While it is easier to expand independent houses, apartment owners too can utilise space more efficiently by enclosing balconies and so on.

It is essential to get the requisite municipal permissions for home extensions. If you are adding a storey, you may need to check height restrictions in the area, and floor space restrictions for enclosing space. An architect can draw up a plan and help you get the necessary approvals for extension from the appropriate authorities.

An architect can also guide you in the most efficient way of carrying out the expansion. For instance, he can tell if the existing foundation is sufficient or whether the walls need to be braced to support the extension. The cost of extension could vary anywhere between Rs 350 and Rs 800 per sqft, depending on the type of finish.

Finance

Home renovation loans are offered by many lenders for any repair, expansion or renovation that adds to the life or value of the property. Therefore, maintenance work such as plumbing, painting, waterproofing, electrical works, and improvement work such as adding rooms, flooring, provision of security grill, water tank or borewell are all funded. However, furnishings and fixtures that are of a movable nature are not usually covered by home renovation loans.

The maximum amount funded varies across financiers - between 50 and 100 percent of the cost of repair/renovation. The maximum loan amount could be up to Rs10 lakhs, but is also subject to the repayment capacity of the borrower. Usually, the monthly installments a borrower has to pay should not exceed 40-50 percent of his gross monthly income.

The loan is secured by a mortgage on the property being renovated. Most financiers do not lend more than 85 percent of the value of the property. If the property has already been mortgaged for the purpose of a housing loan, the mortgage can be extended to cover the home improvement loan, provided that the sum of the home loan and the home improvement loan does not exceed 85 percent (or less, depending on the bank's policies) of the cost of the property.

As in the case of home loans, fixed and variable rate options are available for home improvement loans. Many financiers offer home improvement loans at the same interest rate as home loans. Some charge a premium of 0.5-1 percent. You will also need to pay processing fees of 0.5-1 percent of the loan amount.

Repayment terms extend up to 15 years, and repayments are made in equated monthly installments. The loan can be prepaid partially or fully. Prepayment penalties of 1-2 percent are charged on fixed rate loans. There are usually no penalties for prepayment on variable rate loans.