How Does A Renovation Loan Work In Singapore?

A home renovation is a massive undertaking, both in scope and in a financial sense. It is not uncommon for even a simple refresh to cost a cool five figures. So while it’s ideal to plan ahead for a home renovation, we may not be able to save up the funds we need. 

In such a case, many homeowners commonly turn to renovation loans to provide the funds they need. But before you look for one, it’s helpful to understand how a renovation works in Singapore, the restrictions such loans come with, and whether a renovation loan is truly your most convenient option.

A renovation loan is a type of bank loan homeowners can use to pay for a home renovation. 

Like a personal loan, a renovation loan offers fixed monthly repayments, loan tenures of 1 to 5 years, and competitively priced interest rates. 

Renovation loans are offered on an unsecured basis; no collateral is required to apply for the loan. As such, renovation loans count towards your MAS-mandated borrowing limit, which is capped at 12x monthly income. 

Renovation loans can only be used to pay for actual renovation work, and nothing else. It cannot be used to pay for new furniture and home appliances; you’ll need to finance these purchases via other means, such as your own savings, or using credit card instalment payment plans. 

You can borrow up to 6x your monthly income in a renovation loan. When applying with a spouse, parent, sibling or child, you can borrow up to 12x of the lower monthly income between the both of you. 

However, regardless of your monthly income level, the maximum amount you can borrow is capped at S$30,000 per renovation loan. 

Renovation loans come with their own fees and charges, namely:

Fee	What is it for?	Typical charge
Admin or service fee	Covers the administrative cost of processing your renovation loan	1% to 1.25% of principal
Insurance	Covers your loan liability in the event you are unable to repay it (due to death or permanent and total disability)	1% of principal
Cashier’s Order	Cashier’s Orders made out to your appointed renovation firm, for payments in lieu of cash	First one free, S$5 per order thereafter
Early repayment fee	Levied if you want to repay your renovation loan early	1% to 2% of outstanding amount. May be subject to minimums.
Cancellation fee	Levied if you decide to cancel the renovation loan after it has been approved	1% to 2% of principal. May be subject to minimums.
Late payment fee	Levied if your renovation loan is past due.	S$35 to S$60 per month

A distinguishing feature of a renovation loan is how the funds are disbursed. 

Unlike a personal loan, which is disbursed in cash to your bank account, a renovation loan is disbursed in the form of Cashier’s Orders. These are akin to cheques, and are made out to your appointed renovation firm or contractor. You can pass the Cashier’s Orders to your contractor as payment as the work progresses. 

You can request for multiple Cashier’s Orders for your renovation loan, depending on the payment schedule agreed between you and your contractor. This allows you to have better control over your payments and helps protect you against fraud. 

Note that Cashier’s Orders come with a small fee, and any lost or misplaced Orders will cost money to replace.

While interest rates for renovation loans are competitive and affordable, it is still important to get the lowest interest rate that you can. This is because renovation loans typically have a large amount, and even a small difference in interest rate can save you a tidy sum over the long run.

For a more accurate comparison, refer to the Effective Interest Rate (EIR) on the loan. This is because the advertised interest rate for a renovation loan may appear low, but could add up to a higher EIR, depending on how the loan is calculated. 

Another essential consideration when choosing a renovation loan is the fees and charges, especially the admin or processing fee and the insurance premium. This is because both are charged based on a percentage of the principal loan, which could be substantial in dollar terms. 

For instance, for a S$30,000 renovation loan, a processing fee of 1% would be S$300, whereas a 1.25% fee would be S$375. Add to that the insurance premium of another 1%, and that’s several hundred dollars deducted from your loan right out of the gate. 

Renovation loans in Singapore provided by banks come with loan tenures of 1 to 5 years. This offers some flexibility in repayment, as you can choose a longer repayment period to pay lower amounts each month. 

Bear in mind that because interest is charged per annum, the longer your loan tenure, the more interest you will end up paying in total. It is advisable to choose a shorter loan tenure, but only if you are able to manage the monthly payments. 

You can earn offers and rewards when signing up for a renovation loan, provided you know where to look.

One of the best ways is to search for a renovation loan on our comparison page, which contains details on the rewards we are currently offering. Once your renovation loan application is approved, you will be entitled to the relevant reward.

Renovation loans and personal loans can both be suitable options to fund your home renovations, but there are crucial differences to note.

	Renovation loan	Personal loan
Maximum loan amount	6x or 12x monthly income, capped at S$30,00	4x monthly income, 8x if annual income is more than S$120,000
Can be used for	Renovation works only, as stipulated in the submitted project quotation	No restrictions on use
Disbursement method	Cashier’s Orders	Cash deposited into your bank account

Firstly, renovation loans allow up to 6x your monthly income (12x for joint applications), capped at S$30,000 per loan. Meanwhile, personal loans allow up to 4x monthly income for the average earner (8x for those earning S$120,000 or more per annum). 

Assuming you need to raise S$30,000, and you are earning S$5,000 monthly, you will need to get a renovation loan to achieve your fund target. A personal loan will only provide S$20,000 (4x S$5,000).

However, if you’re earning S$7,500 per month or more, then you are free to choose either a personal loan or a renovation loan to meet your S$30,000 target. But why would you want to choose a personal loan instead?

That’s because of the second main difference between the two: personal loans have no restrictions in terms of what you spend it on, whereas renovation loans can only be used for renovation works. Such works must be listed in the official project quotation that you have to submit when applying for a renovation loan. 

What this means is that personal loans are much more flexible than renovation loans, both in usage and in application. This is further reflected in the way both loans are disbursed – in Cashier’s Orders for renovation loans, and in cash for personal loans. 

In short, renovation loans can help those with lower incomes borrow a larger amount than they could with personal loans, but come with certain restrictions. On the other hand, personal loans can match or exceed the quantum of renovation loans for those earning a high enough salary. They also have no restrictions, and are thus more flexible.

In general, the renovation loan process goes something like this:

1. Search for and compare available renovation loan packages. This will give you a good idea of the prevailing interest charges.
2. Choose the renovation loan package you want. 
3. Check to see that you fulfil the eligibility criteria of the loan.
4. Gather the necessary supporting documents, such as renovation project quote, proof of ownership and income documents.
5. Submit your application for your renovation loan online, together with the required documents.
6. Wait for your loan to be processed. The lender will contact you on further steps.