A renovation loan can supplement your savings during the development of your home. Find out how it works, what it can be used for, as well as the key points to consider when purchasing a home improvement loan.
Now that you finally have the keys to your nest, it’s time to sort out the renovations so you can move in as soon as possible. In an ideal world, everyone would have enough savings to pay for the renovation of their home.
For those of us who lack the cash to pay for all of the required renovations and furnishings, a home improvement loan might be worth considering.
As the name suggests, a home improvement loan is a loan specially designed for homeowners to finance their home improvement project. Of course, you don’t have to rely entirely on a home improvement loan to make your dream home a reality.
In fact, a home improvement loan can supplement the savings that you have accumulated.
How does a renovation loan work?
Home improvement loans generally have lower interest rates than personal loans.
With tenancy terms ranging from one to five years, those taking out a home improvement loan will be required to make monthly repayments over the life of their loan.
To ensure borrowers do not abuse the renovation loan, the approved loan amount will be paid directly to the renovation contractors in the form of a cashier order or multiple cashier orders.
Site visits can also be made after disbursement to ensure that the proceeds of the renovation loan are used for the indicated renovations as illustrated in the quote.
What can a renovation loan be used for?
You can use a renovation loan to pay for all expenses related to the renovation, such as:
- Flooring and tiling
- Painting and decoration work
- Carpentry
- Electrical and wiring work
- Basic bathroom amenities
- Structural modifications
- External work in your home’s compounds, such as the balcony, roof, backyard, or porch
- Installation of solar panels
ALSO READ: 4 Costs to Consider for a Home Renovation as a Parent
What can’t a renovation loan be used for?
You are not allowed to use a home improvement loan to pay for furniture, appliances, artwork, smart home appliances, curtains, and more.
Key elements to consider when applying for a renovation loan
1. Promotional interest rate
For anyone looking to lower the cost of their home improvement loan, it’s always a good idea to compare the different home improvement loans available and keep an eye out for promotional interest rates offered periodically by banks.
Nowadays, banks like DBS / POSB and OCBC are also offering lower interest rates for customers who go green and are committed to making their homes more energy efficient, green and sustainable.
2. Processing fees
Aside from the interest rate, be aware of the processing fees that may apply to the home improvement loan.
Some banks charge a processing fee of one percent of the approved loan amount, while others charge 1.5 percent. Some do not charge any processing fees.
3. The maximum loan amount you have
Along with doing your own homework to find out exactly how much you need to borrow to finance your home improvement project, it’s also important to know how much you can actually borrow.
For home improvement loans in Singapore, the maximum loan amount available to borrowers is capped at six times monthly income or $ 30,000, whichever is lower.
In addition, you will need to have a minimum annual salary of $ 24,000 to apply for a home improvement loan.
4. Other fees and charges
When shopping for a home improvement loan, make sure you know the fees and charges that may apply in certain circumstances, such as past due interest, late payments, prepayments, and cancellations.
Usually, the prepayment charge is set at one to two percent of the outstanding loan balance, so be sure to take this into account when determining the finer details of your home improvement loan, such as the length of your loan, the loan term, loan amount, as well as your ability to repay the loan.
How to reduce your renovation costs
Like it or not, home improvement projects cost a pretty penny.
While it’s nice to turn your Pinterest moodboards into reality, you need to recognize the importance of spending within your means to avoid taking on too much debt.
ALSO READ: Ultimate Guide to Home Renovation in Singapore
Compare your interior designers and contractors for quotes before settling for them.
Instead of borrowing a huge amount of money just to have your dream home, think carefully about your priorities.
Ask yourself tough questions and think about them. Here are a few to get you started:
- Do you really need to hack the flooring when you already have it?
- What about layering laminate or tile instead of tearing up the entire floor?
- Do you need to build that much carpentry?
- Do you really need to hack the walls? Is this your home forever?
- Are there cheaper materials that you can use?
While there are certainly ways to finance your home improvement project, it is always safe to consider what you really need or want, and what is within your budget.
After all, a dream home is built from the memories you create in it, not just the amount of money you spend on it.
This article first appeared in SingSaver.com.sg.
