Why you need to reinvest in your home

You will get a good price when selling, and it does not cost much to do it

Most people view the purchase of a house as some kind of a final investment: you take a loan, prepay it as soon as you can, and then you put your feet up and relax.

Not quite. Prepaid or not, houses have a way of demanding investment. Like every physical asset we own, houses depreciate. Walls develop cracks, floors become jaded, the paint peels off.

In other words, roughly once in three to five years, you need to reinvest in your home. You may need to say hello to the housing loan company once again.

It's not such a big deal anymore. While plain vanilla home loans are no more a big hassle, several housing finance companies have now begun to offer tailor-made loan schemes to renovate, repair, extend, convert or otherwise improve your home.

HDFC and others provide home improvement loans for purposes like external repairs, water-proofing, roofing, internal and external painting, plumbing and electrical work, tiling and flooring, grills and aluminum windows, construction of underground or overhead water tanks, paving of compound walls and setting up borewells, among other things.

If your house needs a lick of paint or is due for any kind of repair and you are short of funds, a home improvement loan is the answer to your needs. Like all other products, there are lots of options to chose from.

Competition within the sector ensures that players offer consumers flexibility and features to chose from. If you are an existing HDFC customer, for instance, the institution will finance the entire cost of improvement of the property.

It also allows 100 per cent finance for improvements to rented properties, subject to the security of an extension of the property mortgage in favour of HDFC.

For first-timers, the finance company disburses up to 70 per cent of the total improvement costs. HDFC lends up to Rs 10 lakh to an individual, which can be repaid over 15 years, under both fixed and adjustable rate schemes, with annual and monthly rest options.

Under the fixed rate option, when instalments are calculated on an annual rest basis, a loan payable in six to 10 years will be available at 9.25 per cent.

If instalments are calculated under the monthly rest option, the rate comes to 9.50 per cent. The equated monthly instalment (EMI) for a 10-year Rs 1 lakh loan works out to Rs 1,313 in the first case and to Rs 1,294 in the second case.

Under the variable interest rate scheme, where the interest rate is linked to HDFC's retail prime lending rate, for the annual rest option, the interest rate is 10 per cent for loans with a tenure up to 15 years. The interest rate under the monthly rest option is 9.25 per cent for loans payable over 6-10 years.

So, the EMI for a Rs 1 lakh loan is Rs 979 in the first case and Rs 1,281 (for 10 year-loan) in the second.

While HDFC levies an early redemption charge of two per cent of the amount prepaid if you take a fixed rate loan, there is no charge if you prepay a variable interest loan. HDFC charges a processing fee of one per cent at the time you submit the loan application.

Canara Bank gives a maximum loan of Rs 5 lakh for renovation, repairs or upgradation of a house or flat. Repayment tenures range from 5 to 15 years. The bank charges a 0.5 per cent processing fee and an administrative fee of the same magnitude.

It allows prepayment in excess of Rs 10,000 towards the principal without any penalty and allows you to reschedule your instalments.

However, if you close the loan in order to transfer the balance to another institution, the bank charges a two per cent penalty on outstanding balances.

Under the fixed rate option, Canara Bank's home improvement loan for a period of 6-10 years is available at 9.50 per cent. The floating interest rate is 10 per cent for a loan in the 5-20 year range.

Citibank offers its home improvement loans without guarantors or additional security but the facility is available only in Mumbai, Pune, Delhi, Kolkata, Chennai, Bangalore, Hyderabad, Coimbatore, Vadodara and Ahmedabad.

The bank disburses a maximum of Rs 5 lakh and a minimum of Rs 2.1 lakh, which can be repaid in 1-5 years. There are no prepayment charges but the interest rate is a stiff 16 per cent. So the EMI per lakh for a five-year loan tenure works out to Rs 2,432.

LIC Housing Finance's Griha Sudhar scheme gets you loans of up to Rs 10 lakh as long as that does not exceed 85 per cent of the cost of repairs, or 25 per cent of the market value of the property, whichever is lower.

If you already have an LIC policy, the fixed rate for a 7-12 year loan is 10.74 per cent while the floating rate is 9 per cent. However, if you are not an LIC policyholder, the corresponding rates rise to 11.25 per cent (fixed) and 9.50 per cent (variable).

Punjab National Bank also offers a Ghar Sudhar Yojana with a minimum loan amount of Rs 50,000 and a maximum of Rs 10 lakh for individuals below the age of 60.

The bank stipulates that the borrower has to contribute a minimum of 25 per cent of the estimated cost of repairs or renovation prior to the disbursement of the loan.

The current interest rate for this scheme is 11 per cent and the bank disburses the amount either in a lumpsum or in stages, and expects the borrower to complete the work within six months.

The loan can be repaid over a maximum period of 10 years and, for a six-year loan, the EMI per Rs 1 lakh works out to Rs 2,085.

Dewan Housing Finance Ltd is another player that offers home improvement loans ranging from Rs 10,000 to Rs 10 lakh in the interest range of 10.50-11.50 per cent.

The loan, payable in a maximum of 10 years, comes with a processing fee of 0.75 per cent of the applied loan amount and an administrative fee of 0.75 per cent of the sanctioned loan amount.

The firm also provides a free triple protection plan, with personal accident risk cover, property insurance and earthquake protection cover if you take the loan.

HOME A-LOAN

Home improvement loans are aplenty. But usually they are a bit costlier than home purchase loans. The rates are lowest when you take loans from the same lender who financed your house purchase.

However, given the fact that home improvements may be needed in most cases once in five years, it would be best to raise only as much as you can comfortably repay in five years.

The longer-term loans are strictly for those who want to make substantial property enhancements like adding rooms or a whole new floor to your independent house.

Home improvements may sound like an optional extra, but they are not. A home that is not properly looked after will not fetch a good price if you want to sell it at some point.