Renovation Loan in Singapore: Which is the Best? (2020 update)

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After going through the hassle of picking the best mortgage loan and purchasing your dream home, the next item on your list would be the cost of renovation. By this time you would perhaps be feeling the financial pinch already, and may have withdrawn some of your CPF for the downpayment of your new home.

So how do you fund the cost of renovations for your new property that can easily range between $10,000 and $100,000? There is, of course, the conventional and painful way of using your own savings - or getting a loan.

Fortunately, in Singapore, banks provide home renovation loans. The interest rates for a renovation loan is by far lower than that of a personal loan, the tenures are shorter at a maximum of only 5 years, with a general maximum loan amount of 6 times your monthly wages and a cap of $30,000.

With the perks provided, there are of course criteria and guidelines to be followed.

 

Home Renovation Loans in Singapore (2020 Update): an Overview

Here is a quick comparison of some of the renovation loan packages that are available in Singapore. This is based on a loan amount of $30,000 and a tenure of 3 years. 

CIMB Renovation i Financing

4.33%

$890.13

OCBC Renovation Loan Monthly Rest

4.18%

$888.12

DBS Renovation Loan

3.88%

$884.12

RHB Renovation Loan Monthly Rest

4.18%

$888.12

Maybank Renovation Loan Monthly Rest

4.3%

$889.73

 

Renovation Loan Criteria in Singapore

In order to qualify for a renovation loan, a Singaporean bank will require the applicant to:

  • Own a property
  • Be a Singaporean Citizen or PR
  • Have a good credit score
  • Fulfil the minimum income requirement (bank dependent)

There are also limitations on what the loan can be used for, including:

  • Electrical works and wiring
  • Tiling, flooring and painting
  • Basic bathroom fittings
  • Property’s external compounds

 

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Renovation Loans: How to choose the right one?

Similar to selecting the best mortgage loan with the best rates, selecting a renovation loan is no different. You will need to explore the market to select a renovation loan package that gives you the best bargain.

Select your interest rate type

A major point that ought to be taken into account when selecting your loan package is whether you want to take a loan with flat interest rate or monthly rest calculation rate.

1. Monthly Rest Calculation Rates

Monthly rest calculation rates mean that the interest charged is based on the current outstanding, while a flat interest rate monthly rest calculations mean that the interest charged throughout the entire period is the same.

2. Flat Interest Rate

The flat interest rate may seem to be the better of the two, but applicants who dig deeper into the effective interest rate may find the result to be otherwise.

Below is an example based on a loan amount of $30,000 and 3 years from POSB based on a monthly interest rate calculation.

1 Year

4.88%

30,000

2 Years

4.88%

20,482.87

3 Years

4.88%

10,490.77

  • Monthly repayments for all: $907.50
  • Average Monthly Interest Paid for all: $894

 

Referring to the above chart, the total interest were you to take the loan is $2,682 for the 3 years. The effective interest rate for this would be 5.62% per annum.

On the other hand, if you were to take a flat interest rate package such as RHB’s at 2.98% (as of 2020) per annum with the same loan amount and time frame, the effective interest rates comes up to 6.31%.

This shows that even though the flat interest rates appear to be more cost effective, the effective interest rates turned out to be the better deal.

So when selecting your home renovation loan package, select the rest rate type that best suits your purpose, whether it is to be based on monthly interest calculations or a flat interest rate.

 

Miscellaneous Fees

On top of the loan, be prepared to fork out more dough in the form of fees. There will be several fees to pay, such as the disbursement fees, processing fees, and if applicable, late payment fees. The disbursement fees are usually 1% of your approved loan amount. On the occasion that the borrower incurs late payment fees, they will need to be prepared to be charged about 5.7% of their loan amount.

 

Know Your Loan Quantum

The loan quantum is based on your household income, margin of finance; otherwise known as Loan-to-Value (LTV) ratio; and your Debt Service Ratio (DSR). Different banks have different qualifying factors, with the majority of the banks offering loans up to 6 times your monthly income. Selected banks such as OCBC allow for a minimum loan quantum of $5,000, while other banks require a higher loan quantum of at least $10,000.

 

Borrowing from Your Home Loan Provider

You can usually get a discount if you were to obtain your home renovation loan from the same bank that provided you your home loan. Many of the websites such as POSB and OCBC, will in fact enquire if you have an existing home loan with them before they allow you to proceed to the calculation.

Take POSB for example, if you do not have an existing home loan with them the interest rate is 3.88%; but if you have a home loan with them, the interest rates are only 2.88% as of 2020.

 

Comparing Home Renovation Loans

Let’s take a look at some of the home renovation loans in the market as of 2020, based on a loan amount of $30,000 and a tenure of 3 years.

CIMB Renovation i Financing

Loan amount

$30,000, with a tenure of 3 years

Interest rate (p.a.)

4.33%

Monthly instalment

$890.13

Total payable interest

$2,044.68

Processing fees

1% of approved loan amount

OCBC Renovation Loan Monthly Rest

Loan amount

$30,000, with a tenure of 3 years

Interest rate (p.a.)

4.18%

Monthly instalment

$888.12

Total payable interest

$1,972.32

Processing fees

0%

DBS Renovation Loan

Loan amount

$30,000, with a tenure of 3 years

Interest rate (p.a.)

3.88%

Monthly instalment

$884.12

Total payable interest

$1,828.29

Processing fees

1% of approved loan amount

RHB Renovation Loan Monthly Rest

Loan amount

$30,000, with a tenure of 3 years

Interest rate (p.a.)

4.18%

Monthly instalment

$888.12

Total payable interest

$1,972.32

Processing fees

1% of approved loan amount

Maybank Renovation Loan Monthly Rest

Loan amount

$30,000, with a tenure of 3 years

Interest rate (p.a.)

4.3%

Monthly instalment

$889.73

Total payable interest

$2,030,28

Processing fees

0.75% of approved loan amount

 

This is another example of choosing your home renovation package carefully. As can be seen, DBS offers a package with the lowest interest rates and monthly instalment. But OCBC offers (perhaps?) the lowest processing fees. Calculations will need to be done in order to pick the best package.

Another thing to look out for are the freebies that the banks will throw your way. Take those into account, see if the freebies will help you lower your repayments. If they don’t, trade them away and bargain for a better deal.

Again, select the package that gives you the most value. Take into account all your other loans such your education loan, mortgage loan and vehicle loan, and then try to keep your home renovation loan repayment to only 30% of your debt-to-income ratio.

 

More FAQs related to renovation loans in Singapore

Can I pay my renovation loan with CPF?

No, you cannot use your CPF savings to finance your renovation loan.

Does HDB provide renovation loan?

No, HDB provides housing loans, not renovation loans.

How do I get a renovation loan?

First, you will need to ensure that you have met the criteria for application. After which, you may apply for the loan online or at the bank by providing the necessary documents. 

Is renovation loan a good idea?

As with any loan, the cost to borrow will always be there through interest rates. The good thing about renovation loan is that the interest rates are significantly lower than a normal loan, making it not as costly an investment to take. 

 

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