After successfully balloting for your first BTO or securing your resale flat, the next hurdle that homeowners need to overcome before moving in is to do renovations.
Even for those who don’t mind spartan living a minimalist, industrial aesthetic, basic renovations are still necessary for a home to be habitable, such as installing electrical end points, installing bathroom heaters, and basic paint work.
According to this cost guide from Qanvast, the average spending on renovations for a new BTO flat $44,000 and $67,000 for HDB resale flat. This is a substantial sum, and unlike the down payment for your home, you cannot use your CPF for your renovations.
If you’ve done the maths and cannot see yourself realistically saving up that sum by the time you collect your keys, then one option is to take up a renovation loan.
What Exactly Is A Renovation Loan?
Renovation loans are special purpose loans meant for financing your home renovations.
Because they are meant specifically for renovations, the interest on renovation loans are lower than personal loans – since the bank knows that you at least own a home (an asset), and the money is being put to enhancing the value of this asset.
With this lower interest rate comes certain restrictions, such as restrictions on what kind of enhancements you can use the renovation loan to pay for, and the fact that the money will be disbursed to your interior designer or contractor directly.
Loan repayment tenors typically range between one to five years, and the maximum amount you can borrow is around six times your annual salary or $30,000, whichever is lower.
When comparing between different loan packages, be sure to check if there are processing/handling/admin fees charged on the loan amount.
Banks can charge extra if your loan needs to be disbursed in stages or to multiple vendors. DBS also levies a mandatory 1% on the loan amount for insurance, which takes care of the outstanding loan in the event of death or total permanent disability.
What Can Renovation Loans Be Used To Pay For?
As mentioned, there are restrictions on what you can use your renovation loan to pay for.The exact list and wording differs among banks, but here is the list for the DBS’ renovation loan to illustrate:
To help you gauge how much you might need, you can utilise this useful renovation cost calculator tool from Qanvast.
Note that buying of furniture and appliances – which can run into tens of thousands of dollars – is not covered under renovation loans. You’ll need to secure alternative forms of financing for those, such as interest-free instalment plans or another loan.
Steps For Applying For A Renovation Loan
Step 1: Before you happily make grand plans for the ultimate home renovation, make sure you qualify for a renovation loan in the first place. There are minimum income requirements, citizenship and age requirements.
At the same time, find out the maximum amount you can borrow, and whether you can afford /are willing accept the monthly repayment amounts. This will allow you to plan for your renovation using a budget that is within your means.
Step 2: With your budget firmly in mind, you can now shop for a suitable interior designer or contractor. After finalising the scope of work, get an invoice from your vendor(s) of choice. You will need the quotation to apply for your renovation loan.
Step 3: Now that you have the invoice, prepare the rest of the documents you need to apply for your renovation loan, such as your NRIC, income statements (CPF statements/payslips), invoice, as well as proof of home ownership.
While you can apply for the loan online, on the phone or at a branch, you will subsequently need to submit these documents before the loan can be approved.
You’ll receive a letter once you loan is approved, and cashier’s orders will be issued to your vendor.
Tips For Saving Money On Renovation Loans
Taking a renovation loan is no small matter, so here are some tips for reducing the amount of money you’ll end up paying for your renovations.
# 1 Get A Quote From The Same Bank Your Took A Home Loan From
If you took a home loan from a bank, you can go back to them and inquire for preferential rates on your renovation loan. This may or may not be better than what other banks offer, but as least you’ll have the best rates to choose from.
# 2 Renovate In Stages
In order to reduce the total loan amount (and thus reduce the interest you’re paying), you can plan your renovations in stages, starting with the bare essentials.
After that, you can move in and take your time to save up before embarking on subsequent renovation works, such as built-in cabinets, feature walls, and other nice-to-haves.
Granted, this might take more planning and be more inconvenient, but the cost savings might be worth it to you. With this method, you might not need to borrow at all, or end up realising that you actually don’t want those extra renovation works after all!
# 3 Source For Cheaper Alternatives
Anything custom will cost more, since you’re paying for the workmanship. To reduce costs, you can try to source for off the shelf items, and perhaps even defer purchasing them until you save up.