The festive season is about to start, and home decoration is on full swing. This is also the time when home owners decide to go in for renovation. Growing family size, increased wear and tear and change in social status are some of the reasons, and the festival season presents the perfect opportunity to present a new-look house to visitors.
Renovation could prove to be a very costly affair. It brings in a huge budgetary burden, and most of the time this is overlooked when planning one’s budget or finances.
Requirement: It is very important to pick and list the total makeovers required during the work. It would help in eliminating the least required changes and thus saves us from lots of unnecessary expenses. Sometimes the home owner could feel that it is better to buy a new home than to spend a huge amount in the repair, so it becomes very important to ascertain the work’s requirement.
Cost estimation: Once the work list is prepared, the work can be executed with the help of a contractor or under self-guidance. Find out the material and labour cost 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 vigilance on material and work quality. It is very important to keep 20 to 25 per cent extra funds over actual estimation to mitigate price escalation or any eventuality that could arise.
Arranging the fund: The funding could be done either from savings or with the help of borrowings. If the total budget is small and doesn’t affect the long-term financial planning than one can utilise savings. However in case of large fund requirement, the better option would be to borrow. Let’s check out some important points while funding through a loan:
Most banks offer home improvement/renovation/repair loan. The common renovation works that a bank allows under such a loan includes the following purposes:
* External repairs including waterproofing on terrace
* Tiling and flooring
* Internal and external painting
* Plumbing and electrical work
* Waterproofing and roofing
* Grills and aluminium windows
* Construction of underground/overhead water tank
* Paving of compound wall (with stone/tiles)
* Borewell or water sourcing
Some banks also allow the purchase of furniture/furnishings, fans and air conditioners under a renovation loan scheme. The banks provide loan up to 75 to 80 per cent of the total renovation cost estimated, and depending on the applicant’s age, the tenure can be up to 20 years. Current interest rate varies in the range of 10.5-14 per cent. (See table)
Apart from renovation loan, the fund can also be arranged through personal loans or credit cards, though it is very costly. One should use this option only if one wants to make an accelerated repayment. Taking a bank overdraft against fixed deposit is another option. Improvement loan allows receiving interest on the savings while arranging funds at a lower rate.
The cash payment of renovation work could be worked out from the available liquidity, but it can put a strain on other necessary works. The cash payment also prevents from taking Section 24 benefit under Income tax Act, which is otherwise available in case of renovation loan funding.
Renovation should not be a big hassle if it is properly planned. Do remember, however, to stick to the original plan and avoid major changes at time of execution.