Buying a home is ridiculously expensive. Not only are property prices always on the rise, but if you want to spruce up your place to make it truly your own, you’ll also need to fork out a pretty penny for home renovations.
Since they’re “brand new” and may already come fitted with flooring, bathroom fixtures and more, renovating new homes like HDB BTO flats and new condos are usually cheaper than resale properties. But even then, according to Qanvast, renovating a new HDB flat is likely to cost you $38,850 to $52,000, while renovating a new condo can set you back $24,000 to $33,500.
That’s not cheap at all. And after splashing hundreds of thousands on the home itself (and probably your recent wedding), it’s highly likely that you’ve wiped out almost all your hard earned savings. This is where home renovation loans come in.
Firstly, what is a renovation loan?
A renovation loan is literally that – a loan you take to finance the cost of renovating your home. You can use renovation loans to pay for electrical and wiring, painting and papering walls, flooring and tiling, carpentry, etc.
The maximum loan amount is $30,000 or six times your monthly salary (whichever is lower), and most renovation loans allow you to take one to five years to repay your loan. There is also usually a minimum annual income requirement of $24,000 to $30,000.
In case you’re thinking of playing punk, the funds are disbursed directly to your renovation contractors, so there’s no way you can game the system and use the money to fly off to the Maldives for a holiday or something.
This sounds like quite a good solution to the problem, right? Indeed, if you genuinely need a couple of thousand bucks more to pay for necessary renovations, a renovation loan can be very helpful.
Here are the various renovation loans available in Singapore.
Renovation loan interest rates
|Bank loan||Renovation loan interest rates|
|DBS renovation loan||3.88% p.a. (or 2.88% p.a. for existing DBS home loan customers)|
|POSB renovation loan||3.88% p.a. (or 2.88% p.a. for existing DBS home loan customers)|
|Maybank renovation loan||4.2% to 4.3% p.a. (or 2.88% for existing Maybank home loan customers)|
|OCBC renovation loan||4.18% p.a.|
|CIMB renovation loan||4.2% to 4.33% p.a.|
|RHB renovation loan (flat rate)||2.98% ($15k to $30k loan) or 3.68%. (loans of $15k and below)|
|RHB renovation loan (monthly rest)||4.18% p.a.|
For some banks – namely DBS/POSB and Maybank – there are preferential rates for existing customers. So if you already have a mortgage with them, you can consider borrowing from them again for your renovations.
Most banks follow a monthly rest system, where the interest is computed per annum (p.a.). The exception is RHB, which has a flat-rate package, which applies the fixed interest rate on the principal loan amount.
RHB also has a furnishing loan, which is specifically for furniture and appliances (instead of renovation works like flooring, carpentry, etc). The interest rate for that is much higher at 8.8% though.
You may be wondering about UOB, which is a popular local bank that’s glaringly missing from this list. UOB does not have a renovation loan, but they have a “UOB Home Construction Loan” which lets you use the funds for not just renovations, but for building your home (e.g. landed property). Their rates are not published, and you’ll need to reach out to them for a quotation.
Renovation loan vs personal loan
A renovation loan is very similar to a personal loan, except you get to enjoy slightly lower rates. Both are considered unsecured loans.
As you can see, home renovation loan interest rates are mostly below 4.5% p.a., with the more competitive packages even going below 3% p.a. On the other hand, personal loan rates typically hover around 4% to over 5% p.a.
The reason why banks can offer better rates is because you’re required to show proof that you’re borrowing funds for the “legitimate” reason of renovation. During application, you’ll be asked to provide proof of property ownership, as well as your contractor’s invoice.
Although the difference in interest rates seem slight, it can really add up over the years. So if your purpose for borrowing from the bank is to pay for renovations, definitely choose a renovation loan over a personal loan.
Getting a renovation loan with bad credit
Having a bad credit score could make it harder for you to secure a new loan.
Generally, if you have a bad credit rating, it probably means you
- have other debts
- have applied for new credit facilities recently, causing the bank to suspect you’re overextending yourself, or
- are not punctual with your loan repayments. All these suggest you may not be ready to take on another loan – in this case, a renovation loan.
If you have a bad credit rating, seriously consider whether or not you need a renovation loan. Try to borrow only what you absolutely need – if you need to overhaul something essential like the bathroom or kitchen, then go ahead, but try to keep costs minimal. Cut out anything else that you don’t need, especially elements that are solely for aesthetic purposes. (You won’t die without that TV feature wall!)
At the end of the day, a renovation loan is still a loan, which means incurring debt. It’s dangerous (and not to mention, foolhardy) to think of them as “an easy way” to pay for your dream home transformation.
We say, a wiser way is to tally your savings to come up with a renovation budget, and then spend it by prioritising essential renovations first. Also, since most banks use compounding interest, if you can afford the higher monthly repayments, choosing a shorter tenure will also be cheaper in the long run.
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