Dearest home buyers, it is understandable if a hefty amount of money has already been used to purchase your new house. Between shelling out a lump sum amount for the initial down payment and working hard to pay off your mortgage every month, there’s still an impending expense coming your way before “sweet home” becomes a reality – the cost of renovating your home.
You might now find that you’re left with a budget smaller than expected to design your house to your own liking. The honest truth is that not all of us are cash-rich, so it might be a challenge to be able to come up with at least $30,000 to pay for your home renovations. However, fret not, for there is a solution – renovation loans.
You may be thinking, ‘Another loan?’, but the solution for this is simple – just make sure your debt-to-income ratio is around 35% (rough figure in accordance with the banks’ internal guidelines). That said, the following is a set of guidelines on acquiring a loan for your renovation: how to obtain it, general criteria, comparisons, and finally, the common mistakes you should avoid.
Criteria for Singapore Renovation Loans
The initial criteria to be met would be your citizenship status, age, and annual income. Generally, the criteria are as follows:
- Singaporean / Singapore Permanent Resident (PR)
- Minimum age of 21
- Minimum annual income of $24,000
Of course, if the basic criteria are met, the next question in mind would be the loans. You’ve probably searched high and low for the best home loan in Singapore and found that the interest rate varies from 1.3-2%. What about renovation loans?
As a general rule, a renovation loan would carry a higher interest rate simply because it is an unsecured credit facility. Renovation loans are obtainable from a minimum of $5,000 to a maximum of $30,000 but as a guideline, they typically range between 5 to 10 times your monthly income.
Which bank offers the better reno loan rate?
With that in mind, here are some of the renovation loans offered by various financial institutions in Singapore:
To provide you with a better understanding of the costs shown in the table above and put things into perspective, let’s give a common example.
Based on the above figures, assuming the maximum loan tenure is 5 years, and the reno loan amount $30,000, the monthly installment for each loan is as follows:
It is important to note that these are projected amounts based on the respective interest rates, loan tenure, and loan amount.
By the time you are taking up a renovation loan, you must also take into consideration other processing fees when tabulating the overall amount to be paid, and see if you have the financial capabilities to service the loan.
Common mistakes to avoid when getting your reno loan
With all these in mind, we also hope that you’ll avoid common mistakes made by others who have previously taken up a renovation loan. Some of these mistakes include:
- The inability to fork out the payable amounts when the time comes.
Suggestion: We recommend sticking to a total maximum debt-income ratio of 35% as mentioned earlier.
- Not making a comparison or conducting sufficient research for the optimal renovation loan package
All-in-all, we hope that we have given you insightful information into the what, the why and the how of obtaining a renovation loan. To find out more about your loan eligibility, always consult a professional for advice.
Article by Jasper Eng, Associate Director, Redbrick Mortgage Advisory
Jasper brings to Redbrick an excellent track record amassed in the 10 years he has spent in the banking and finance industry. His professional experience covers a diverse portfolio in the field of wealth management as a financial advisor, relationship manager and a mortgage specialist. As a senior member of the Redbrick team, he manages a team of dynamic brokers/advisors in the area of sales management and performance.
The team at Redbrick Mortgage Advisory has more than 60 years of banking experience and is proficient in structuring and sourcing for the best financing terms for both residential and commercial real estate in Singapore, Malaysia, USA, UK, Japan, Thailand and Australia.