As a first-time homebuyer, landing your dream house is just the first step. Every homeowner will probably have to think of renovating their homes at one point in time. However, this requires a big sum of money and as much as we want to be able to pay for our renovation solely from saved up cash, there are times where we need to resort to a renovation loan. There are two main paths when you apply for a renovation loan and they are through a bank or a moneylender in Singapore. Of course, everyone wants to land the cheapest interest rates but this also depends on your eligibility and each individual’s circumstance. Most importantly, you have to budget your renovation costs depending on the types of reconstruction you’re looking into then you can begin to view your options and decide which renovation loan can get you the best bang for your buck.
What you need to know about renovation loans
Renovation loans are known to be cheaper than your average personal loan and their interest rates are relatively affordable. First, you need to know the basics of a renovation loan and if they fit into your budget. When you apply for a renovation loan, applicants are allowed a loan 6 times their monthly salary or a loan capped at $30,000, whichever is the lower cost. Most loan schemes have a repayment time of 1-5 years and will require monthly instalment payments. It is important to note that once a renovation loan is approved, the cash will be disbursed directly to your contractor to refrain from any personal misuse of the loan. This means that your loan amount is strictly for renovation works such as flooring, tiling, painting, carpentry, and electrical wiring and cannot be used to pay for furniture or household appliances.
Where to get an affordable renovation loan?
Local banks and licensed moneylenders in Singapore offer renovation loans and are fairly similar in eligibility and features. As interest rates are quite affordable, it is always important to shop around. When searching through banks, some may offer monthly rest rates and others flat rates. Monthly rest rates are when the monthly repayment amount reduces over time as the interest rate is calculated based on the monthly balance of the loan. Flat rates are calculated based on the total principal amount. In general, the interest rate ranges from 3-4% per annum. Therefore, it can help to find a monthly rest scheme to reduce your debt repayment.
Knowing if you are eligible for a loan is important as well and Singaporeans and Permanent Residents between the ages of 21-65 are eligible. The applicant should be earning at least $24,000 per annum and have a good credit score to get their loan approved. Documents that will be needed when you apply are the quotation from your contractor, income documents, proof of property as well as your CPF contributions in the last 3-12 months.
An alternative option: Personal Loan
A tip for homeowners who may need a loan of more than $30,000 and also wish to spend their cash loan on furnishing their homes, personal loans are a great alternative. Unlike renovation loans that are strict in disbursement, a personal loan is flexible and will be given directly to you to use freely. As always, a personal loan is available at banks or moneylenders in Singapore. A lot of the time, banks can give personal loans of up to 12 times your monthly income, which is double a renovation loan. For applicants that may not have the best credit scores, licensed moneylenders offer affordable loans that have lesser restrictions.
What to consider when looking for low-interest rates
As explained, when you apply for a renovation loan, do note that it largely depends on the amount needed, your budget and plans as well as your credit eligibility. Once you gauge your financial standing, find the best interest rate using a simple checklist. Figure out the minimum and maximum loan amount needed, do not loan out more than you need, and also plan out your finances and figure out how long you need to pay off your debt. Depending on these factors, your interest rates can decrease significantly when planned right. Choosing the interest fee type is important and always be aware of the extra costs that come with applying for a loan. Usually, there are extra processing fees as well as late payment fees if you are not diligent in repayment. The most vital tip is to always shop around and enquire with as many financial institutions as you can to get the best bang for your buck!