Renovation loans

As the name implies, it’s a special type of personal loan obtainable from banks, specifically for the purpose of renovating or remodelling your home. You may have used all your available savings for the deposit on your home, so a renovation loan could mean the difference between getting your property renovated now or having to wait for years.

No. There are limits on the type of renovation you can fund with a renovation loan. You can only use it for major projects, such as:

• Electrical works and wiring
• Carpentry, installing cabinets
• Tiling and flooring
• Painting and redecorating
• Basic bathroom fittings
• Structural modifications
• External work such as fencing or roofing

The lender may visit the site during or after the completion of works, to make sure that the loan is being used for the stated purpose.

You can’t use any part of the renovation personal loan to buy furniture or appliances. Apply for a standard personal loan if you need cash to buy these.

You can usually choose between a flat interest rate or a monthly rest interest rate.

With a flat interest rate, the total interest payable at a fixed rate for the entire repayment period (loan tenure or loan tenor) is calculated in advance and added to the loan principal. The resulting amount is divided by the number of months in the repayment period, to arrive a fixed equal monthly repayment amount.

With a monthly rest interest rate, the rate is variable, and the interest charge for each month is calculated based on the outstanding amount of loan principal. You will be required to repay the interest and a portion of the principal every month.

A rest rate will usually work out to be less expensive in total than a flat rate, even when the flat interest rate is lower than the rest interest rate.

If your credit score is OK you can usually borrow up to six times your monthly salary, sometimes more. You’ll need to have a minimum income of at least $24,000 and possibly $30,000 per year, depending on the lender.

Available repayment periods are usually between one and five years.

In addition to the standard documentation for any type of personal loan (proof of identity, income and residential address) you will also need to prove that you (or in some cases a close family member) own the property (for example with a copy of an HDB sales order) and also provide an invoice or cost quotation from your approved contractor.

Unlike a personal loan for a non-specific purpose, the cash borrowed using a renovation loan will not be deposited into your personal bank account. Instead, the lender will make either a single upfront payment, or a series of payments, to the contractor you have chosen to carry out the renovation work.

If you own an HDB flat you will need to use one of the HDB licensed renovation contractors listed in the Directory of renovation Contractors (DRC) on the HDB website. Specific types of renovation will also require different types of licensing for the contractor. For example, electrical installations can only be carried out by Energy Market Authority licensed contractors.

No. Renovation loans are intended for Singapore citizens and permanent residents only. Foreigners can consider applying for a standard personal loan to cover the cost of renovations.

Standard personal loans tend to have higher interest rates applied to them because the lender does not know how you are going to use the money, and regards the loan as more financially risky. Anyone applying for a renovation loan must first prove that they own a home, or that a family member owns the home, and home owners are also considered a safer bet.

So, while you can of course fund your renovations with a standard personal loan, a renovation loan will cost you less.