Contractobhai team : What are funding options for Home owners who are planning to renovate their existing home (which is not on loan) ?
Loan Expert : First of all let me clarify. Indians have a very preconceived understanding about Loan against property. You have seen old hindi movies in which Hero in family emergency has to keep his property GIRWI.
Loan against property – which I am talking about has nothing to do with such scenario.
This is like a mortgage. Home owners have preconceived understanding about mortgage. They feel mortgage means give their existing house or property as a guarantee to bank in exchange of loan. This is not like that.
Home Improvement Loans is definitely option for everyone who is looking to fund their Home Renovation project. However Home Improvement loans are in-secured loans hence ‘rate of interest’ is slightly higher. Compared to this if you own a house & planning to fund it’s renovation work, you can get loan at lesser interest rate. Also you can opt for bigger loan amount.
What it means here is say the current valuation of the property is 60 lacs. And home owners needs 20lacs – 30 lacs for home renovation. Home owners can approach a bank and request for Loan against Property plan. Here the bank will find out the current valuation of the house. They will fund you with say” X %”. This percentage usually ranges from 50%-55%. Say if the current valuation of your house is 60 lacs, the bank will fund you with 30 lacs.
With LAP there is no transfer of ownership with the bank. With Bank loans till the time you repay, ownership stays with bank. As I said, In LAP, there’s no transfer in ownership. The property is just on mortgage. If you are not defaulting, even if there’s a default there is 3 years period to handle it.
This is the best option. And then you always have a pure home Improvement Loan or Personal Loan choice too.
For Personal Loan (Home Improvement Loans) home owner has to pay interest rate which is 13%-14%. Many institutions mention 10.9% which is not the reality. Very rarely you will have institutions offering 11% or 12%. Home Improvement Loans always works out to be 13% to 14%.
Whereas with LAP or Balance-Transfer-Top-up, the interest rate is 10%-11%. Here home owner receives higher amount from bank at lower Interest Rate. So if you already own a house or apartment, home owners shall preferable opt for LAP or Balance-Transfer-Top-up to renovate their homes or buy a new house.