Home Extension Loan

Home extension is one of the best alternatives to buying a new home. Many people consider extending their existing home rather than buying a new home, which needs a significant amount of money.

When the family grows, there is a need for more space. At that time, you can either consider moving to a new location by buying a new house, or if you don’t want to leave your locality or your existing home, then an extension seems to be the best idea. So, when you need to extend your house to a bigger and more accommodating space to match your large family's needs, then you must know about a home loan for the extension of house.

Home extension loan provides you with a chance to fulfil your dream of owning a bigger house. Many people have the requisite space in the home but due to the lack of funds, they are not able to convert their dream into reality. But to ensure that your family remains comfortable, the lenders provide home extension loans at attractive interest rates. Due to the low-interest rates, it is assured that things are strictly under your budget, and you don’t have to dig a hole in your pocket.

Here, we will know all about home extension loan, its interest rates by several lenders, eligibility criteria, documents needed, and more to ensure that you have a hassle-free home extension loan process.

Below mentioned are the features which a borrower can consider while availing home extension loan:

1. Home Extension Loan Interest Rate

Various Banks and Non-Banking Financial Corporations NBFCs along with Housing Finance Corporations HFCs provide home extension loans to the applicants. Consumers who want to add more space to their existing homes can apply for home extension loans. Home extension loans are offered to both the existing homeowners as well as new customers.

The lenders can allow the borrowers to avail home loan through a traditional product or as a separate product under the home loan category. Home extension loans are offered at different interest rates by different lenders. These loans start from an interest of around 7.50% p.a., and the tenures allowed ranging up to 30 years.

Most lenders offer home loans for the extension of house at floating interest rates. The interest rate of the home extension loan also depends on the factors such as the credit score of the applicant, their monthly income, their occupation, their profile, and loan principal amount. A home extension loan is offered at the same interest rates as it is in the case of regular home loans.

Here are the interest rates of home extension loans as compared to the regular home loan interest rate by different banks.

Interest rates mentioned in the above table can vary from one lending partner to the other and are subject to change

 

Here are the interest rates for the lenders providing regular Home Loans for extending the home. 

Interest rates can vary as per the financial institution’s policies

2. Loan-To-Value Ratio

Loan-To-Value Ratio or the LTV Ratio of home extension loans means the total part of the home’s value that a lender can offer to fund via the loan. The LTV ratio is set per the RBI's regulatory caps in the home extension loans.

Here is the exact breakup of the loan amount in the case of a home extension loan and the LTV ratios: 

LTV is also based on the credit risk assessment, which is conducted by lenders. The same determines the final LTV ratio for a particular applicant who has applied for a loan for house extension. The factors that are taken into account for the credit risk assessment are the credit profile of the loan applicant, the ability to repay, the market value of the home, and more.

3. Tenure of the Home Extension Loan

It is also essential to know about the tenure of the home extension loan. Most banks and NBFCs, along with HFCs, offer home extension loans for a tenure going up to 30 years. These lenders consider a few factors, such as the applicant’s repayment capacity, etc., while deciding their loan tenure. The loan applicants need to determine their monthly EMI contribution as per their net monthly income.

4. Balance Transfer

The loan borrowers can also consider using the option of a balance transfer facility. As per this, the borrowers can transfer their remaining home extension loan to a different lender if the latter offers a lower interest rate. So, a balance transfer facility can lower the overall loan amount of the borrower and save the interest cost. The new lender will also run the credit risk assessment of the applicant as per their rules and policies before finalising the balance transfer request.

5. Charges: Processing Fees, Prepayment Charges

The lenders also charge a processing fee from the new customer as well as the existing borrower who takes up the home extension loan. The processing fees for a home extension loan are around 3% of the loan amount. As per RBI, some rules and guidelines do not allow lenders to charge a prepayment fee on floating interest rate loans. But in the case of fixed-rate loans, the lenders can levy a charge or waive the prepayment fee.

Here is the list of documents needed for a loan for a house extension.

• Income proof

• ID proof

• Address proof

• Age proof

• Proof of employment or business

• Home extension documents

• Estimated cost quotation

• Correctly filled application form

Check the list of home loan documents for different types of borrowers for a regular home loan.