The recent unprecedented floods in Chennai have left many mid-income families high and dry. With homes inundated by flood water, the damage to property and life has been beyond comprehension. In many cases, home interiors need to be completely refurbished, entailing sizeable investment. Besides, high-value consumer durable goods such as washing machines and refrigerators have been damaged. So, what are the financing options available for people who need to replace high-value consumer goods and refurbish their homes?

Before you make a loan choice, here are three key factors you need to keep in mind. First, the quantum of loan you need to refurbish your home or replace white goods. If the loan requirement is large, you may be better off going for a secured loan, which will be cheaper compared to unsecured ones. For instance, if you need ₹2 lakh to replace your furniture and consumer goods, such as refrigerator and washing machine, you can opt for a top-up home loan. These loans are offered at interest rates comparable to a regular home loan (9.5-9.95 per cent) and are possibly the cheapest among the various loan products.

Eligibility criteria

However, the quantum of top-up loan you can get will depend on the total principal repaid till date. For instance, if you had borrowed ₹50 lakh for your home initially and your current loan outstanding is ₹40 lakh, the bank will re-value the property to ascertain the actual loan eligibility today and lend you the balance. It will also look into your repayment record, before approving a top-up home loan.

If you are looking at a smaller ticket loan and are keen on quick sanction, you can explore options, such as such as personal loans. Interest rates on personal loans that vary between 14 per cent and 17 per cent tend to be far higher than those on top-up loans. But the documentation work involved in getting a top-up loan is quite cumbersome.

Second, how much you can shell out every month as equated monthly instalment (EMI) needs to be kept in mind while deciding on the loan type. "If you want to reduce your monthly EMI outflow, you need to look for loans with a lower interest rate. This again leaves you with secured loan options, such top-up home loan, loan against property, loan against shares or gold loan," explains Mahalingam, Managing Director, RupeeZone. Of course, this will depend on the collateral you own. Opting for a longer duration loan reduces your EMI. You can take a home loan top-up for up to 20-25 years.

But the flipside of this is that you will end up paying higher absolute interest over the life of the loan, unless you decide to foreclose it.

Finally, if you opt for a long duration loan, it is important to ensure financial discipline. For instance, every time you make a windfall or have any surplus funds, utilise it to repay your loan. That way, you can take advantage of the low rate on your secured loan and ensure that you don't end up paying more than your borrowing, as interest.