How To Apply For A Renovation Loan In Singapore?

Achieving your dream home involves making alterations and additions to your property to reflect your personal tastes and aesthetics. 

While undoubtedly a rewarding and worthwhile goal, many homeowners see their dreams shattered when confronted with the harsh reality: Home renovations are highly expensive, and even the barest of renovations can easily slap you with a five-figure bill!

To help fund this costly-but-important endeavour, homeowners can consider home renovation loans for a convenient and relatively affordable solution. Let’s take a look at how to apply for a renovation loan in Singapore. 

How to apply for a renovation loan?

Applying for a renovation loan is a simple and straightforward process that can be broken down into the following major steps.

Determine how much you need to borrow, and for how long

First, work out how much your home renovations will likely cost, or how much you are willing to spend. This will tell you how much you need to borrow. 

Rather than relying on your own estimation, it’s a good idea to get a quote from an interior designer or a contractor. This will help you arrive at a realistic loan amount, and besides, you’ll need to submit the quotation when applying for a renovation loan later anyway. 

As a safety margin in case of unexpected additions, consider adding 10% to 15% to the entire amount. This can be funded by savings (if you have a sufficient amount), if you want to save on interest rates.

Also, you’ll want to work out how much you can pay back each month. This will impact how soon you can repay your loan, thus informing you which loan tenure to choose. 

Search for the best renovation loan package

Once you know how much you need to borrow and for how long, you can start searching for a suitable renovation loan package. 

The easiest way to do so is with SingSaver’s online loan comparison tool, which helps you quickly find the best available renovation loan package. 

Also, applying for a loan through SingSaver entitles you to exclusive rewards, ranging from the latest mobile phones to laptops, gaming consoles and more. 

Obtain a quote from your renovation firm to certify the loan 

In case you didn’t do so earlier, now is the time for you to obtain a quotation from your renovation firm. This is essential if you are applying for a renovation loan, and not a personal loan. 

You see, many banks no longer offer renovation loans and personal loans as separate products. Instead, they simply offer personal loans as a general-purpose funding option. 

To date, only DBS and OCBC offer renovation loans that are to be used for renovation works only. They cannot be used to fund other purchases, not even new furniture and home appliances.

As such, renovation loans require the submission of an official renovation quotation or invoice from an official interior firm or renovation contractor. Without this document, your application will be denied. 

However, if you’re ok with taking a personal loan instead of a renovation loan, then you won’t require a quotation (but you’ll probably still want to get one for budgeting purposes).  

Apply for your preferred renovation loan 

Once you’ve shortlisted the renovation loan you want, you can go ahead and apply for it. 

Check the eligibility requirements, gather the required documents and submit your loan application. Should your renovation loan be approved, you will receive the funds as cashier’s orders made to the name of your appointed contractor. 

You can then make payments to your renovation contractor as the work is progressively completed, as spelled out in your agreement.

If you apply for a personal loan instead, you will receive the funds in your bank account. You can then pay your contractor directly in cash, but be sure to do so over instalments at predetermined junctures of the work. 

What’s the maximum amount you can borrow in a renovation loan?

Renovation loans are capped at S$30,000 or 6x your monthly income, whichever is lower. This applies to a single application. 

You can jointly apply for a renovation loan together with a spouse, parent, sibling or child. For joint applications, the maximum loan amount will be calculated based on 12x of the lower monthly income of both applications. 

So for example, if you’re earning S$3,000 per month, and your spouse earns S$3,500 per month, your loan quantum will be calculated as S$3,000 x 12 = S$36,000. 

However, the S$30,000 cap per loan still applies, even for joint applications. Still, a joint application can be helpful in securing a larger renovation loan than applying on your own. 

What to consider when applying for a renovation loan?

Maximum loan amount

As explained earlier, renovation loans are capped at S$30,000 per loan. This may not be sufficient for those looking to do extensive renovations or do not have sufficient savings to fund the rest of the desired work. 

In this case, your spouse or co-occupant of the property may consider applying for another renovation loan to make up the shortfall. 

Alternatively, you can try getting a personal loan to increase your available funds, but be careful not to exceed your borrowing limits of 12x your monthly income. 

Interest rate and loan tenure

As with all loans, it is important to pay attention to the interest rate of the loan. Besides the nominal or advertised rate, also check the Effective Interest Rate (EIR), which gives you a clearer gauge of your cost of borrowing. 

Another factor to consider is the loan tenure. Renovation loans allow tenures of between one to five years, and while a longer loan tenure means lower monthly repayment amounts, it also means higher interest paid in total. 

This is because the loan interest is charged throughout the duration of your loan, so the longer the renovation loan tenure, the more interest you have to pay. 

Handling fee and insurance fee

Renovation loans also come with handling fees and insurance fees. Customarily, these fees are pegged at 1% of each of the loan principal amounts. 

Handling and insurance fees can result in rather large amounts, given the typically high loan quantum of renovation loans. Thus, it is beneficial to look out for offers or promotions which waive such fees for some tidy savings. 

Should you use a renovation loan or a personal loan?

One more thing to consider is whether you should use a renovation loan or a personal loan. Well, it depends on your monthly income, and how much you need to borrow. 

Here’s the key. Renovation loans allow you to borrow up to 6x your monthly income. For personal loans, you can borrow up to 4x your monthly income, or up to 8x to 10x your income if you're a high-income earner (more than S$120,000 per year). 

Hence, assuming you need to borrow S$30,000, you will need to choose a renovation loan if your monthly income is less than S$7,500. You can also make a joint application to borrow up to 12x monthly income, although this will be based on the lower income of both applicants. 

However, if your income is S$7,500 or more, you can use a personal loan to borrow up to 4x your monthly salary, or S$30,000. As an added advantage, you can avoid the handling fee and insurance fee (although some personal loans also come with admin fees). 

What about interest rates? At the time of writing, renovation loans and personal loans have competitive interest rates, so there isn’t a clear winner either way. This gives borrowers greater freedom to choose the best option for them.