Cracks on walls, bad wiring, leaking roofs, etc can give you a nightmare if you have spent all your resources on buying a house. But don't lose heart for you can get the cost of such repairs financed.

Home loan companies offer home improvement loans to finance the cost of tiling, plumbing, electrical work, grills, woodwork, painting, compound walls and almost all improvements.

Interest rate

As in the case of home loans for a new house, fixed and variable rate options are also available for home improvement loans. Many financiers offer home improvement loans at the same interest rate as home loans (in the region of 7.75% to 8.75%), though others charge a premium of 0.50% to 1.00%.

Also you have to pay a processing fee of 1.00% to 2.00%. Prepayment penalties of 1.00% to 2.00% are charged on fixed rate loans, though there are usually no penalties for prepayment on variable rate loans.

Security

The security for a home improvement loan is the property, which is being repaired or renovated. Most banks and finance companies do not finance more than 85% of the cost of the property mortgaged.

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.

However, the sum of the home loan and the home improvement loan should not exceed 85% (or less, depending on the housing finance companies' policies) of the cost of the property.

Tax break

For rented properties, the interest paid on home improvement loans is deductible from the annual value (i.e. the higher of the actual rent paid and the notional rent fixed by the municipality), resulting in a lower taxable income.

Further, 30% of the annual value is deductible for repairs and renovations, regardless of whether the repairs and renovations have actually been carried out. For self-occupied property, interest to the extent of Rs 30,000 is deductible from taxable income.

The maximum amount of fund which one receives varies between 50%-100% of the cost of repair or renovation. Maximum loan amounts range from Rs 200,000 to Rs 1,000,000.

It is also subject to the repayment capacity of the borrower. Usually, the sum of all the monthly installments a borrower has to pay should not exceed 40%-50% of his gross monthly income.

Other than the above income and margin criteria, you need to be a salaried or self-employed individual. Also you will have to repay the loan before you retire i.e. the term of the loan should not extend beyond your retirement age, or 65 years if you are self-employed. Repayment terms extend up to 15 years.

With interest rates at historic low this is a good time to lock in a home improvement loan.

Housing finance companies ask for these documents before disbursing or approving the loan:

• Original copy of property papers.
  
• Original copy of approved drawings of proposed renovation.
  
• Original quotation from the contractor.
  
• Original own contribution receipt.
  
• Detailed cost estimate from an architect/engineer for the repair/renovation.
  
• Income papers i.e. latest salary slip/salary certificate and latest Form 16 for salaried individuals, and certified copies of tax returns with balance sheets and profit and loss accounts for three years for self-employed.

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