Home Extension Loan

ome Extension Loan is offered by banks, non-banking financial companies (NBFCs) and housing finance companies (HFCs) to consumers looking to extend or add more space to their existing residential home property. Lenders offer home extension loans to both existing home loan borrowers and new customers. Most lenders provide this facility either through their traditional home loan product or as an independent offering within the broader category of home loans.

Features of Home Extension Loan

1. Interest Rates

Lenders usually provide home extension loans at floating interest rates. The interest rate for loan applicants availing a home extension loan depends on factors like their credit score, monthly income, occupation profile, employer’s profile and loan amount. Home Extension Loan interest rates are usually the same as interest rates charged for regular home loans.

2. Loan-to-Value Ratio

The LTV Ratio of home extension loans is the total proportion of a property’s value that a lender can finance through the loan. The LTV ratio for home extension loans should not exceed the regulatory caps on Home Loan LTV ratios decided by the RBI. The breakup of loan amounts for a Home Extension Loan and their corresponding LTV ratios are as follows:

Lenders carry out a credit risk assessment to determine the final LTV ratio for a loan applicant availing a home extension loan. Some of the major factors considered for the credit risk assessment process include the loan applicant’s credit profile, repayment capacity, market value of the property, etc.

3. Loan Tenure

Banks, NBFCs and HFCs usually offer home extension loans to applicants for tenures extending up to 30 years. Lenders take into account a loan applicant’s repayment capacity while finalising their loan tenure. They usually require loan applicants to limit their monthly EMI contribution, including the EMI of their proposed loan, to be within 50-60% of an applicant’s net monthly income. Home extension loan applicants can utilise the home loan EMI calculator to ascertain the loan tenures and EMIs for their home extension loans according to their repayment capacity.

4. Availability of Balance Transfer Facility

Existing borrowers have the option of the home loan balance transfer facility where in they can move their outstanding home extension loan to another lender at lower interest rates. Balance transfer facility allows an existing borrower to bring down the overall interest cost. The new lender will undertake an exhaustive credit risk assessment of an applicant before authorizing their balance transfer request.

5. Processing Fees and Prepayment Charges

Most lenders levy processing fees both from new and existing borrowers availing a home extension loan. The processing fees for a home extension loan usually extends up to 3% of total loan amount. RBI has formulated strict guidelines that prohibit lenders from charging a prepayment fee on floating rate loans. However, when it comes to fixed rate loans, lenders have the option to charge or fully waive off the prepayment fee.

Eligibility Criteria for Availing Home Extension Loan

• Resident Indians can apply for a home extension loan. Some banks and NBFCs/HFCs also offer home extension loan to NRIs
• Age: Lenders generally provide Home Extension Loans to new loan applicants or existing borrowers (under the balance transfer facility) aged 18 years and above. Lenders also usually require their borrowers to repay their home extension loans by the time they are 70 years old.
• Both salaried and self-employed individuals/business owners can apply for a home extension loan
• Existing borrowers can also improve their home loan eligibility by adding one or more co-borrowers, selecting a higher loan tenure or furnish an additional source of income
• Credit Score: Lenders are more likely to provide a home extension loan to applicants with credit scores of 750 and above. A higher credit score also makes loan applicants eligible for availing a home extension loan at lower interest rates.

Individual lenders also consider factors like an applicant’s income, their assets and liabilities, work experience (for salaried), business continuity (for business owners), etc. while ascertaining their eligibility for a home extension loan.