Increase Existing Home Loan Amount - Home Loan Blog - Tata Capital

How to Increase Existing Home Loan Amount

Mar 08, 2017

OR: Yes, you can increase your loan amount rather than take a new one!

It was an important day for Rajesh-he was to attend his first board meeting ever. His wife, Sunita, had kept a brand new suit ready for him. She had painstakingly removed every single piece of lint visible to the human eye. They were both excited. After all, it marked a new stage of his career. It could even set the ball rolling for a promotion in the upcoming round of performance reviews.

Sunita hung the suit on the rack against the wall. With barely any minutes to spare, Rajesh got dressed quickly and walked to the breakfast table for a quick nibble. And that's when Sunita noticed the white marks on his perfectly-ironed, lint-free black suit. The wall had ruined all her efforts.

As they both looked around their home, they realised it was time for a complete do-over-new paint, furniture-the whole shebang.

But there was a problem.

The promotion would take months to work out. In the meantime, with Rajesh's current salary and the obligations they had to fulfill towards their children, they barely had any cash to fund a home renovation. With the looming thought of what effect termites and moss can have on their young children's health and belongings, they decided they would have to rely on borrowings to get their home fixed.

That weekend, Rajesh called one of our loan officers for advice. He already had a home loan with us, but wasn't sure if he could get another one.

Our officer informed Rajesh that he had two options: 1) Opt for a new 'Home renovation' loan. 2) Refinance his current home loan to fund the renovation.

Old is gold

Rajesh chose option 2, and you too can easily refinance your existing loan. As part of this process, you can change one or more of the following aspects of your home loan:

  1. Loan amount
  2. Tenure
  3. Interest rate
  4. Lender

In Rajesh's case, our officer suggested that he increase his loan amount by the required amount-Rs 3 lakh in his case. To help him make the decision, our officer chalked out a detailed list of the pros and cons of both options.

When to increase, when to get a new loan?

  1. What are the home loan interest rates?
    Interest rates change over time. The rates that were available five years back when Rajesh availed a home loan may not be applicable now. Besides, a home renovation loan falls under the personal loan category, not home loan. This means that the rates are more likely to be different. Even a 1% difference can make a big difference when you borrow lakhs of rupees. So this becomes an important basis for the decision. The rule is simple: Opt for the option with lower interest rates. In Rajesh's case, his home loan's interest rate was 0.75% lower than the home renovation loan's 11% rate. However, that's not the only factor he had to consider. This brings us to...
  2. ...the loan tenure:
    When you opt for a new loan, you can opt for a tenure that suits your needs. So, Rajesh could opt for a loan ranging from 3 years to 5 years. However, if he simply borrowed more money as a part of the current loan, he may have to stick to the same tenure. Home loans generally have a long tenure of 25-30 years. The longer the period of time left, the more interest you pay. Since Rajesh had about 25 years left to pay off his home loan, even a Rs 3 lakh extra borrowing could increase his interest expense by Rs 5.33 lakh! This is by paying Rs 2,779 extra as EMI. So, he would have to compare what was cheaper - the higher interest on the new, but shorter loan; or the existing loan with a lower interest rate.
  3. Consider your tax benefits:
    All the EMIs you pay every month can be deducted from your income (as long as it does not exceed Rs 3.5 lakh in a year). This, though, only applies to home loans. A home renovation loan has lower tax benefits. So that's another factor to consider. So, Rajesh may be paying a higher EMI by increasing his existing home loan, but the tax savings could make it a cheaper option. This could be an even bigger deal for those who fall under the higher tax brackets (20-30%)!

The bottom line:

Borrowers like Rajesh are spoilt for choice today. There are plenty of viable options available to fund expenses- from small to big. All you need to do is choose.