Buying a house is never enough. You need to put in a lot of love and effort into making the place look pretty to call it home. From getting the correct interior designing done to choosing an appropriate flooring material to installing the best lights, home decoration is hard work. Apart from your ideas and efforts, you also need sufficient money to complete such a job. This is why you need to opt for loans. Here, you have two options. You can either take a top-up home loan or a home renovation loan. Let us find out more about these types of loans in the article below.
What is a Top up loan?
A top-up loan, as the name suggests, is a loan that offers an additional amount of money, over and above the home loan amount. You can take a top-up loan only when you have an open and existing home loan. Here are some features of the top-up home loans:
- Purpose of the Loan– You can opt for a top-up loan when you need to renovate your home. But a top-up loan’s purpose is not limited to this alone. You can use the loan to pay for a medical emergency, for a wedding, to consolidate loans, for higher education, etc. This is a very flexible type of loan that you can use in multiple ways.
- Rate of interest– The interest rate on a top-up loan is marginally higher than the original home loan. The rate can be between 0.5% – 1.00% higher than that of the existing home loan.
- Total loan amount– You can get a maximum loan amount of 80% of the property value. The loan will be given after taking your repayment capacity and your overall financial strength into account.
- Loan repayment– The top-up loan repayment period is usually equal to that of the home loan’s repayment tenure. Some banks allow you to pre-close the loan if you can, while others don’t. Check with your loan provider about this clause before you opt for the top-up loan in the first place. A foreclosure fee is also applicable in most cases.
- Tax benefits– You can claim tax deductions on the top-up home loan. You can claim it as a sole borrower or co-borrower. If there are co-borrowers, then both parties can claim the tax benefits from the top-up home loan.
These are some of the most important features associated with a top-up home loan. Keep them in mind before you apply for such a loan to get the home renovation costs covered.
What is a Home Renovation loan?
A home renovation loan is taken exclusively for a home remodeling project. You are not permitted to use it for any other purpose, such as paying for marriage or higher education. The loan can be taken independently, irrespective of whether or not you already have an open home loan. The loan can be used to do the interiors of a brand new home or to renovate an old home completely. Here are some features of a home renovation loan:
- Purpose of the loan– You can use the loan amount to renovate the house you are already living in completely. You can also use it to renovate a new home you have recently purchased. You can use the amount towards changing the flooring, repainting the walls, getting new furniture, getting the roofing and waterproofing work done, plumbing and woodwork done.
- Rate of interest– The interest rate of a home renovation loan is identical to that of a home loan. You do not have to pay any extra interest if you opt for this type of loan to renovate your house.
- Total loan amount– The value of 80% of the house is the total loan amount available for a home renovation loan.
- Loan repayment– The home renovation loan repayment period is equal to the home loan repayment period. You have the option to foreclose the home renovation loan at an earlier time if you are financially able to do so. The loan provider will ask for a foreclosure fee, which you have to pay for early repayment of the loan.
- Age of the property– A home renovation loan is most commonly taken to renovate a new house or to invest in its interior designing work. Suppose, you want a loan to renovate an old house property, you may not get a loan in this case, as banks do not provide loans for such homes that are too old.
A home renovation loan is also a perfect financing option when you look to do-up your house. Take the loan from the right loan provider and renovate your home with ease.
Top-up loan v/s Home Renovation loan – The final verdict
As you can clearly see from the points mentioned above, both the top-up loans as well as the home renovation loans come in handy when you need to remodel your home. However, if you have to choose between the two, you need to keep the following points in mind:
- A top-up loan is more wide-ranging. For example, if you want to refurbish your house due to marriage in the family, you can use some of the funds to meet marriage expenses too. Such liberties are not present in a home renovation loan.
- A home renovation loan is more economical. The interest rates are lower than that of a top of loan. If you have purchased a house recently and you don’t have enough finance, it may be a good idea to take this loan at a lower interest rate than a top-up loan.
Both options are good. You have to make your selection based on what your current requirements are. Choose the option that is best suited for you and get your home a beautiful makeover.