A home is one of the most valuable possessions and one of the most important aspects of one’s livelihood. It provides protection and security to one’s family. People invest their entire lives’ savings in order to build their ideal home. With the passage of time, you may find that you need to make some changes and upgrades to your house. Home renovations may be expensive, especially with the current rate of inflation. Using your savings to pay for such a large purchase will quickly deplete your funds. While a personal loan may appear to be the logical solution, you’ll be surprised to learn that a special sort of loan known as a home renovation loan might help you out in this situation.
For the vast majority of individuals, owning a home is a dream comes true. You may need to make adjustments and restore or repair your home after a few years to give it a fresh look. You would hire an interior designer, who would draw out ideas and give you a quote. You may prefer to take out a personal loan for home improvement because it is such a large investment.
What are the Tax Advantages of taking out a Home Improvement Loan?
Home remodelling loans are unique in that you can claim tax advantages on the interest you pay. Home
improvement loans are eligible for a deduction of up to Rs 30,000 per year under Section 24 of the Income Tax Act 1961. This is included in the Rs 2,00,000 deduction for interest paid on home loans for self-occupied property. In contrast to a house loan, where repayment of the principle amount can be deducted under Sec 80C, there is no advantage for the principal amount of a home remodelling loan.
What is the Process for Getting a Home Improvement Loan?
Step 1: Determine how much money you’ll need for repairs or renovations to your house.
Step 2: Create a strategy and present it to the bank with all pertinent information.
Step 3: Banks often lend between 85% and 90% of the amount specified in your renovation budget.
Step 4: The lender’s or bank’s ‘technical department’ authorises the loan amount. The majority of the time, this approval is based on your ability to repay the loan and your credit history. The funds are disbursed to your loan account after the loan has been approved.
Step 5: Your submitted quote may not be rejected, but some of the mentioned costs may not be included in the amount of your home remodelling loan. To prevent such situations, make sure that you thoroughly read all of the lender’s terms and conditions for home renovation loans.
Home Improvement Loans Tax Advantages
Home improvement loan tax exemption applies to any money paid on the loans. If the homeowner pays the money directly, however, a home improvement loan tax deduction is also available. Let’s take a closer look at the tax benefits of home renovation loans:
- Home Improvement Loan Tax Deduction
When a person takes out a loan to enhance his home, he is eligible for a tax deduction. This includes any loans taken out for maintenance and remodeling projects like as painting and plumbing.
Home improvement loan interest is free from taxation under Section 24 of the Income Tax Act of 1961. However, the maximum amount of tax relief on home renovation loans is Rs 30,000 per year. This home improvement loan tax relief contributes to the overall tax advantage of Rs. 2,00,000 provided under the aforementioned provision for interest paid on house loans each year. If you have an ongoing housing loan and are taking advantage of the income tax benefit on the home loan interest, your total tax deduction for both housing and home renovation loans is Rs 2,00,000. If you get a Rs. 1,70,000 interest benefit on your house loan, the maximum tax deduction on the home renovation loan is Rs. 30,000.
- Home Renovation Loan Tax Exemption, there is no deduction for the principle amount
Under the home renovation loan tax exemption, there is no deduction for the principle amount: It’s worth noting that you can’t claim tax advantages against the principal amount of a home repair loan under section 80 C of the Internal Revenue Code, which allows for a tax deduction in the event of a housing loan.
Benefits of Home Improvement Loan
1. Lower Rate of Interest
A reduced and set rate of interest is one of the most significant benefits of obtaining a home renovation loan. You must pay a higher interest rate if you take out a personal loan. You will also pay a set rate of interest on a home renovation loan. You will save a significant amount of money in the long run if you compute a lower interest rate on a larger amount for a longer length of time. Paying the loan amount becomes easier and more gratifying when you pay a reduced rate of interest for a longer length of time.
2. Less Paperwork
If you already have a house loan with the same bank, this type of loan involves less paperwork. Some banks may undertake physical verification of the property before accepting the loan, while others will evaluate your past loan history and paperwork with minimal paper work for disbursement of your home improvement loan with the same bank.
If you are getting this loan for the first time, you must go through the entire process of applying for a loan as well as the disbursement regulations.
3. More Lender Options
If you want to borrow a personal loan, you only have a few options or only a few lenders will agree to provide you an unsecured loan if you have a low income or a negative credit history. If you take for a secured loan, however, more lenders will be willing to offer you money for renovations. With these types of loans, you can get a larger loan amount as well as a lower rate of interest.
4. Lower EMIs
If you take out a loan at a lower interest rate for a longer length of time, your EMIs will be lower. When compared to a loan with a higher rate of interest, you will pay a smaller EMI each month. If you are a salaried individual with a restricted source of income, acquiring a loan with a low interest rate and cheap EMI would be a godsend. As a result, acquiring a secured home loan is the easiest method to stay on track with your monthly budget.
5. Flexibility in Application
You took out a home improvement loan to renovate your home. It may be used to expand one or two rooms in your home. Make a new balcony or expand your home’s covered area. If you were able to save money on this remodelling and extension project, you may use it into installing new cabinets to your room or updating the doors and cabinets in your kitchen. This type of secured loan gives you the flexibility and freedom to use it for a variety of home renovation projects.