Are you considering taking a renovation loan for your home improvement? This is a huge expense that will affect other purchases in the next couple of years and it’s more than necessary to think it over before applying. Here is what you need to know about it and how to prepare.
What is a renovation loan?
This is a type of loan that is specifically designated for financing home renovations. It usually comes with lower interest rates since the person borrowing the money has an asset to offer in return if things go wrong - their home. However, it has to be noted that there are certain limitations such as restrictions on the number and type of redecoration jobs that could be accomplished. You should also know that the allocated money will be directly paid out to the interior design company and you can’t use it for anything else.
What does it involve and what does it not include?
The exact things that your home renovation may or may not include are different for each bank. Here is an overall list to illustrate what the loan can be used for once you are approved:
- Tiling and flooring
- Alterations in the structure of the edifice
- Built-in cabinets
- Basic bathroom fittings
- Wallpaper and painting
- Electrical works
Loans for home improvement do not usually cover air conditioning, appliances, and furniture. Thus, if you want to buy a new sofa, a nice high-end refrigerator or a built-in wardrobe, you are going to have to cough up the money yourself. Alternatively, some banks have separate loans for furnishing, so if you need help with that too, discuss those options with a clerk.
How do I tell if I am eligible for a renovation loan in Singapore?
For starters, all banks state that you must be a Singapore Permanent Resident (PR) or a Singaporean. Other than that the requirements vary greatly from establishment to establishment. You can apply on your own or take advantage of the option for joint application where the relationship between the two persons should be siblings, spouses or parent/child. The two basic factors that are taken into consideration are minimum income per annum (p.a.) and age. Here are a few examples:
- OCBC: The age requirement is 21 to 59 years. The minimum income p.a. for single applications is S$24,000. As far as joint applications are concerned, it is S$24,000.
- Maybank: The age requirement is 21 to 55 years. The minimum income per annum for single applications is S$30,000. With regard to joint applications, the sum is S$24,000.
- CIMB: The age requirement is 21 to 50 years. The minimum income per annum for single applications is S$24,000. The same rule applies for joint applications.
- DBS: The age requirement is 21 to 50 years. The minimum income per annum for single applications is S$24,000. When it comes to joint applications, each individual must earn at least S$12,000 a year.
- RHB: The age requirement is 21 to 55 years. A minimum income of S$30,000 applies in terms of single applications. Joint applications require that you make S$30,000 a year or more.
- POSB: The age requirement is 21 to 50 years. The minimum income per annum for single applications is S$24,000. When it comes to joint applications, the sum is S$12,000.
How do I apply?
First off, make sure you comply with the minimum requirements imposed by the bank of your choosing. Then, collect all the necessary documentation such as a copy of your renovation permit, proof that you have ownership of your home, ID card, plus a quotation or an invoice by the contractor. If it is a joint application, you also have to submit something that proves the relationship between you and the other person involved.
Once you get all papers in check, choose one of three ways to apply: by visiting the nearest branch of your desired bank, by phone, or via the establishment’s website (if this option is available). If you get approved, you will be notified via email and the money will be sent straight to the interior designer either in one go or in separate payments.
How much can I borrow for home improvement in Singapore?
The maximum amount that can be delivered is either S$30,000 or six times your yearly salary - whichever of the two is lower. The tenure can range anywhere from one to five years.
How much interest rate should I expect to pay?
Different banks, different rules. Here is information about some of the most popular financial establishment in Singapore.
- OCBC: The bank charges a 6.08% effective rate for a tenure of 5 years and a loan amount that accounts to S$30,000.
- Maybank: The bank charges a 4.33% monthly rate with a minimum tenure of 4 years.
- CIMB: There is an effective interest rate that amounts to 4.85%.
- DBS: Depending on the loan tenure, the effective interest rate is either 5.11% to 8%.
- RHB: The effective interest rate is different depending on the loan amount and tenure. You will get an interest of 7.27% - 8.60% if the sum does not exceed S$15,000. For loans that run between S$15,000 and S$30,000, the rate is anywhere from 6.02% to 7.32%.
- POSB: Depending on the loan tenure, the effective interest rate is either 5.11% to 8%.
What happens if the contractor does not keep their end of the bargain?
Oftentimes homeowners are concerned that the interior designer company might not fulfil the responsibilities stated in the agreement or that it may close down before the overhaul is over. This raises the question of whether the loanee can get back some of the finances that have been disbursed to the contractor. And the answer is: no. Regardless of how the refurbishment goes, you still owe the bank the amount that you borrowed plus some additional costs on top. If you are not satisfied with how the firm did its job, this is between you two and the bank has nothing to do with it.
So, what can you do about it? To avoid getting such unfavourable outcomes, it is recommended to stave off sending the entire sum right away. Instead, you want to divide the money in small chunks and transfer each one using a separate cashier’s order, then you remember to pay the contractor only after successful completion of the tasks you have agreed upon.