Ways to Fund your Next Home Renovation Project

Here are ways to fund your home renovation in Singapore

For most home-buyers, finding the perfect home that fits their needs is only the beginning. They've got to run from bank to bank, in search of a suitable mortgage loan. Once that's settled, there's yet another headache – the home renovation and how to get a renovation loan.

Let's face it; we like living in a house that looks good. And we feel even better when our guests come in saying "Wow, your place looks great!"

We all want to turn our house into our dream home. But if you're a first-time homeowner, you've likely used up a large portion of your cash-on-hand and your CPF for the downpayment. 

How are you going to afford the renovation?

With renovations ranging anywhere between $15,000 to $100,000, you might need some help.

Fortunately, banks provide renovation loans to help Singaporeans finance their renovation costs and reduce the stress in turning your home picture perfect.

What Is A Renovation Loan?

Renovation loans are special loans meant for financing home renovations (both new homes and existing homes). 

Loan Repayment Period: Your choice of 1-5 years

Maximum Loan Amount: Up to six times your annual salary, or S$30,000, whichever is lower

Types of Renovation Loans

Some banks offer their loans based on a monthly rest calculation, while others use a flat rate.

Monthly rest: Interest is only charged on the outstanding loan amount. This means that as you pay down the loan, you pay less interest over time.

Flat rate: The interest is calculated based on the entire principal amount.

At first glance, flat rates are usually more affordable. But if you can repay consistently (or better, more upfront), your effective interest rate will be lower with a monthly rest package.

Benefits of Home Renovation Loan vs Personal Loan

 

Home Renovation Loan

Personal Loan

Interest Rate

Lower Interest Rate

Ranges from 3% - 4%

Higher Interest Rate

Ranges from 3.5% - 11%

Loan Quantum

Lower Cap

 

You can get a maximum loan equal to six months of your income, or up to a maximum of $30,000, whichever is lower.

Higher Cap

 

If you earn at least $120,000 a year, you can borrow 8 to 10 times your monthly salary, depending on the bank.

Loan Tenor

Shorter Repayment

Repayment must be made within 5 years.

Longer Repayment

Some banks have a loan tenor of up to 7 years.

Processing Fees

Lower Fees

Processing Fees: 0-1%

Admin Fees: 0-1.5%

Higher Fees

Processing Fees: 1-3%

Admin Fees: Variable

Paperwork Required

More Paperwork

  • Renovation contract or quotation from a contractor
  • Income documents
  • Proof of property ownership, e.g. HDB sales order

Less Paperwork

  • Latest 3 months' computerised payslips.

Usage

Stricter Usage

Can be used only for works like structural alterations, retiling the floor, painting the walls or building cabinets.

Flexible Usage

Can be used for anything at all

Availability of Loan

Not all banks provide loan option.

Only DBS, POSB, OCBC offer renovation loans

All banks provide loan option.

Eligibility / Criteria

  1. You must be a Singaporean or Permanent Resident.
  2. Between 21-55 years of age.
  3. Earning at least $24,000 per annum.
  4. Have a fair credit score.
  5. Joint applicant must be employed and should be a spouse, child, parent or sibling of the main applicant.
  6. Main or joint applicant must be the owner of the property to be renovated.

What Can you Use A Renovation Loan For?

If you are planning to get a renovation loan, keep in mind the restrictions imposed on the use of the loan.  

Can be used for:

  • Electrical and wiring works
  • Built-in cabinets
  • Painting and redecorating works (e.g. wallpaper)
  • Structural alterations
  • External works within the compound of the house
  • Flooring and tiling
  • Basic bathroom fittings

Cannot be used for:

  • Furnishings
  • Air-conditioning
  • Refrigerator
  • Washing machine
  • Curtains
  • Home entertainment system
  • Household appliances

Factors To Consider When Choosing a Renovation Loan

  1. Interest Rates

    The first thing that loan customers think about when taking out a loan is the interest charges. And rightly so, since it can indeed amount to a few extra thousand dollars over and above the principal borrowed.

    Note that the monthly interest rate might not equal the effective interest rate!

    Sometimes banks do offer promotions, like reduced interest rates over a period, processing fee waivers and other perks to make the loan more attractive. But it's always good to do a proper calculation first to see if it makes sense for your situation.

  2. Loan Quantum

    Apart from the maximum loan amount that we mentioned above, most banks also have a minimum loan amount. Banks such as OCBC have a minimum loan quantum as low as S$5,000 while others require loans to be at least S$10,000.

  3. Fees

    When applying for a loan, there are other fees involved as well. The standard fees are processing fees, admin fees, insurance fees and late payment fees.

    Processing fees are pegged to the approved loan amount. So if you take a loan of $20,000, you might have to pay 1% of that.

    If you opt for your loan to be split into multiple cashier's orders, the bank might charge you an admin fee.

    All loan customers are subject to late payment for not paying their instalments and/or interest on time.

  4. Loan Provider

    Homeowners who are taking up home loans can usually save some money if they take a renovation loan from the same home loan provider. Banks might offer discounts in their renovation loan package that could be up to 0.5% cheaper!

    Now that you’re almost done and ready to move in, we’d love to help make your home even better. With MSIG, you can get up to $270,000* coverage for renovations, movable household items, household contents and personal belongings. See if you qualify here.

How To Apply for Renovation Loan?

As you plan your renovation, calculate how much your ideal renovation will cost. You could use a renovation budget calculator to help.

Here are 3 simple steps to apply for your first renovation loan:

  1. 1. Get a quote from your contractor
  2. 2. Prepare your documents
  3. 3. Apply for a loan

Step 1: Get a quote from your contractor

Once you've checked that you qualify for a renovation loan, you can scout around for interior designers and contractors. Ask various vendors for quotes so you can apply for your loan.

Step 2: Prepare your documents

  1. NRIC
  2. Latest IRAS Notice of Assessment
  3. Income Statements
  4. Invoice
  5. Proof of Home Ownership

You can apply for the loan online, over the phone or at a branch.

Step 3: Apply for a loan

Submit the prepared documents to the bank. You will receive a letter once the loan is approved.

Note that renovation loan disbursements are made in the name of your contractor – not you. You won’t be able to cash out the money and use it on your own expenses.

Summary

Additional tip: One way to reduce the total loan amount and the interest you pay, is to renovate your home in stages. After building out essentials, you can move in and take your time to save up before getting started on more renovation works.

This might be more inconvenient and messy, but the cost savings might be something worth considering. Plus with this method, you might end up liking a basic home interior and even come to realise you don't need the extra renovation works after all!

With all these being said, the most important thing is to spend within your means. If there's any way that you can save some money, like sourcing for cheaper alternatives or opting for off-the-shelf items instead of custom-made fixtures, it could go a long way.

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