How is a Home Renovation Loan Different from a Home Extension Loan?


A home loan is a timely helping hand for anyone looking to buy a house. Once you have purchased a house, you may want to make changes to it in the future. These can be cosmetic changes like building a modular kitchen or something bigger like a new room or floor. Whatever be your need, some loans help you fulfill these needs and aspirations.

Home renovation loans and home extension loans are the two loan products that are relevant to these types of needs. As their names suggest, a home renovation loan comes in handy when you want to makeover your house. On the other hand, a home extension loan is used for expanding the house from its current shape by adding new rooms or floors. Depending on the requirement of the borrower, both loans serve their unique purpose in the loan market. And in that sense, these two loans differ from each other.

Purpose of the loan
A home extension loan is taken to cover the cost of expansion of your existing house. As your family grows, the size of your home may feel smaller. Sometimes, the homeowner may feel the need for a home extension purely for aspirational reasons, for the comfort of living in a wider residential space.

A home renovation loan is taken to meet the expenses of remodeling or repairing your existing house. Due to budget constraints, we may need to defer various remodelling tasks for a later day. Even if we don’t defer these expenses, we may feel the need to redo the house’s interiors. Besides, with time, the house also needs repair and maintenance. If you need funds to meet these types of expenses, a personal loan for the home renovation is a perfect choice for you.

Percentage of the loan
Unlike a personal loan, a home extension loan is disbursed as a percentage of the extension cost estimate. In the case of a home renovation loan, an existing customer is more likely to get 100% of the renovation estimate. However, the home renovation loan amount as a percentage of cost estimate may be applicable for new customers. Besides, a home renovation loan is calculated as a percentage of the market value of the property.

Amount of loan
A home extension loan is usually available for a higher amount. This is because the cost of a home extension is likely to be higher than renovation. If a lender is offering a maximum home renovation loan of Rs. 25 lakhs, the maximum home extension loan could be as high as Rs. 5 crores. These limits vary from lender to lender, but a home extension loan is certain to have a higher maximum loan amount.

Tenure of the loan
Home extension loans are available for a longer repayment tenure due to their higher eligible amount. Home extension loans may have a repayment tenure of even 20 years. Home renovation loans have a shorter repayment term, generally ranging from one to six years. Just like a personal loan EMI calculator, you can check your EMI for home extension and renovation loans too.

Interest rate
In the present loan market, home extension and home renovation loans can be available at attractive rates of interest, much lower than personal loan interest rates. However, home extension loans are generally offered at a lower interest rate than home renovation loans. Home extension loans enable you to make expansions to your existing house. You can avoid the hassle of shifting to a bigger house and instead make your house bigger. Its convenient repayment tenure and tax benefit make it a preferred loan product. On the other hand, home renovation loans enable you to redo your home and are easy to avail. Home renovation loans can be your answer to any home redecoration work. These advantages make both these loans immensely popular among homeowners.

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