Moving into a new home can run up hefty costs. There’s the downpayment for the home, stamp duty, legal fees and home insurance to foot. If you’re newlyweds or moving into a bigger home to accommodate a growing family, you may potentially be paying for other large expenses at the same time, such as wedding or hospital delivery fees.
Given all this, you’ll be relieved to know that banks offer renovation loans to help offset the cost of updating your new home. Transforming your home into a personal haven usually doesn’t come cheap. Renovation could cost anywhere from S$20,000 to over S$100,000, depending on how extensive it is and the types of fittings you chose. The cost of renovating a Build-to-Order flat can be significant, but it generally costs even more to overhaul a resale property due to the need to hack away dated parts or redo wiring and lighting.
Renovation loans can be a crucial asset at a time when you may not have much cash to spare. We delve into what these loans entail and how exactly they could provide a boost to your finances.
What renovation loans offer
Renovation loans are usually short-term loans with tenures of up to five years. You can borrow around six times your monthly salary or S$30,000, whichever is lower. The loan can be used for such works as built-in carpentry, painting the walls, flooring and tiling, re-doing the bathrooms, and electrical work. However, it cannot be used to pay for loose furniture or for anything other than renovation. The bank will issue the approved amount to the contractor via cashier’s orders.
The advantage of renovation loans over personal loans is the lower interest rates. The interest rates for renovation loans range from around 2% to 4%, while those for personal loans are around 3% to 6%. Nonetheless, personal loans have more flexible terms when it comes to the amount that can be borrowed, the period of repayment, and what the loan can be used for.
In other words, renovation loans are great if you need an infusion of cash specifically for renovation purposes, which you’ll be able to pay off within five years. Do note that CPF cannot be used to pay back this loan. Check that you won’t exceed the Total Debt Servicing Ratio, which only allows you to borrow up to 55% of your gross monthly income, including any other loans you may have taken for your property or car.
Some banks are also offering lower interest rates for “green loans”, which are extended if you are able to meet criteria that shows your renovation will include sustainable features such as energy-efficient LED lighting, ceiling fans, or solar panels.
Here’s a look at some of the renovation loans being offered:
|Bank||Interest Rate||Processing Fee||Promotions|
|DBS Green Renovation Loan||3.68%||1% of approved loan amount||0% interest in first year if apply before 30 June 2022|
|DBS Renovation Loan||3.88%||1% of approved loan amount||0% interest in first year if apply before 30 June 2022|
|CIMB Renovation-i Financing||4.20%||1% of approved loan amount||No processing fee till 28 Feb 2022|
|Maybank Renovation Loan||4.1%|
2.8% for existing Home Loan customers
|1% of approved loan amount||0.05% p.a. off first two years of loan’s interest rates if take Maybank Green Pledge, till 31 March 2022|
|OCBC Eco-care Renovation Loan||3.98%||0.5% of approved loan amount|
|OCBC Renovation Loan||4.18%||0.5% of approved loan amount|
|RHB Renovation Loan||4.18%||1% of approved loan amount||S$100 Grab gift card when apply for a loan with tenure of five years, till 31 March 2022|
How to qualify for renovation loans
Only Singapore citizens or permanent residents between the ages of 21 and 65 qualify for renovation loans. The property owner or a family member (parent/child/spouse/sibling) with the owner’s consent can apply for the loan. Some banks also allow for joint applications. Different banks have varying minimum incomes for the main applicant, which range from S$24,000 (DBS and OCBC) to S$30,000 (RHB).
How renovation loans can help save you money
Hypothetically, let’s say that a renovation costs you S$25,000, and you opt to repay it over the maximum five years, can taking a renovation loan help to save you money?
Taking an interest rate of 3.68%, the total cost of the loan that you would pay back would be S$29,600, or S$493.30 per month rather than paying S$25,000 out-of-pocket at one go. Such a strategy can save you money if you put some of the cash that would have gone into the upfront cost into an investment that grows over the five years (or more). For example, CPF’s Special Account has a 4% interest rate with compounding interest. Taking the renovation loan could help you get a headstart on an investment that benefits exponentially from you getting in earlier.
However, if your cash flow is lacking to begin with, the renovation loan will simply be a more feasible alternative to incurring higher debt on other types of loans.
Renovation loans vs personal loans
While the interest rates for personal loans generally are higher than for renovation loans, banks sometimes do offer promotions on the former that will give you a better deal. If you’re looking for an efficient way to comprehensively compare available loan interest rates, check out our loan partner for a free service that will match you to the best options for your needs.
Renovation loans are helpful when you’ve got numerous expenses stacking up. They enable you to spread out your payment plan so you can allocate your cash to more urgent needs. Handily keep track of your renovation loan and other expenses using the Planner Bee app, which allows you to easily add your loan (if the bank is supported).
Such loans could also help you free up some resources to start investing earlier. Taking up a renovation loan could therefore be worthwhile if it helps you breathe a little easier while designing your dream home.