Introduction
The festive season is on, and home decoration has already started. Every person wants a house to be tidy, clean, spacious, good-looking and comfy. The depreciation of a house, growing family size and change in the social standing, build up the wish for a better place to live, and thus it needs periodical revamping of home. The property price also flies with time so it could be judicious sometimes to stay in the old home with some modernization than to buy/replace with a new one. Many new home buyers can also require restoration works due to work being kept on hold at the time of initial shifting. Whatever could be the cause for repair or renovation but the main essence is that it is a very important part of every household.
Renovation could prove to be a very pricey matter. It brings in huge budgetary obligation because most of the time this is missed in all the future financial planning and hence setting aside fund for a repair or home improvement becomes troublesome. It is very true that a renovation project costs more than the new construction plan so the things get complex as it proceeds with the work without a proper plan.
Following are some important steps before starting the renovation:
- STEP1: Estimation of total renovation work needed
It is very important to choose and list the total changes needed during the work. It would help in cutting out the least required modifications and thus saves from lots of unwanted expenditures. Sometimes the home owner could feel that it is better to buy a new home then to pay out a huge amount in the maintenance, so it becomes very important to determine the work's requirement.
- STEP2: Renovation cost estimation
Once the revamping work list is ready than it becomes comfortable to find the fund required for the whole work. The work can be discharged with the help of a contractor or under self-guidance (If you can spare sufficient time). Find out the material and labor cost from the market and compare the rate quoted by the contractor. If there is no significant difference in cost, then take the help of a contractor and keep proper surveillance in material and work quality. It is very important to keep 20 to 25 percent extra funds over actual estimation to reduce the price escalation or new development that could arise during the work.
- STEP3: Assessment of the fund required
The fund arrangement is needed depending on the total plan calculation. The financial backing could be done either from savings or with the help of a loaned fund. If the total budget is small and doesn’t influence the long-term financial planning than one can make use of the savings, however, in case of large fund need, the better option would be to acquire the fund, i.e. loan, credit card, etc.
Let’s check out some important points while funding through loan:
Loan from Banks/ Financial Institutions
Normally banks provide home renovation loan for following work purpose:
o External repairs, including Sealing on the terrace
o Grills and aluminum windows
o Plumbing and electrical work
o Waterproofing and roofing
o Construction of underground/overhead water tank
o Paving of compound wall (with stone/tile/etc.)
o Bore well or water sourcing
o Tiling and flooring
o Internal and external coloring
| Bank/Financial Institution | Product Name | Maximum amount | Rate of Interest | Maximum Tenure |
| HDFC BANK | Home Improvement Loans | 80% of the cost of improvement depending on valuation | 10.25 to 11.5% | 15 years subject to retirement age |
| Bank Of Baroda (BOB) | Baroda Home Improvement Loan | 75% of the improvement cost estimated | 13% | 10 Years |
| Union Bank Of India (UBI) | Union Home | Up to Rs 10 Lac | 10.50% to 11% | 10 Years |
| Allahabad Bank | House Furnishing Loan | Maximum Rs 3 Lac | 13.50% | Up to 7 Years |
Some banks also permit buying furniture/furnishings, fans and air conditioners under a modernization loan scheme. The banks provide loan up to 70 to 85% of the total renovation expense assessed. The banks sanction loan for up to twenty years span depending upon the age of the applier. The interest rate asked by banks varies widely in the range of 10 to 14 percent. The present renovation loan rate offered by some prominent banks is as follows:
Note: The data has been taken from banks website as on 10 Oct 2012.
The cash discharge of restoration work could also be worked out from the on hand liquidity, but it can put a stress on other mandatory works. The cash remittance also hinders from taking Section 24 benefit under Income tax Act, which is otherwise valid in case of renovation loan funding. Sec 24 permits the interest paid under such loan to be deducted from the taxable income up to Rs 30000 if the assets is self occupied or any amount in case of let out property.
Conclusion
To finish we can say that renovation is not an issue if it has been properly planned. The easy lending by financial institutions has made it comfortable to decide on renovation. The only thing one must keep in mind while finally going for a home repair/improvement is to adhere with the original plan and escape major changes in time of execution.
About the author:
Amit Sethi is an MBA (Fin) graduate and a Financial Consultant. He has spent 10 years in Equity research, Stock broking and Financial Consultancy Sector. He can be reached at amvilube@gmail.com
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