After saving home inspiration photos from Pinterest and watching home makeover shows, it’s finally your chance to turn your home into your dream space. A home renovation project is an exciting endeavor until you realize the costs involved.
In Singapore, the average renovation cost of a 4-room HDB BTO can set you back between S$16,000 and S$140,000. As such, a home renovation project typically includes getting a loan and planning your budget.
For home renovations, you can take up a home renovation loan in Singapore. Renovation loans typically have a lower interest rate than personal loans at about 3% to 4% p.a. This type of loan is specifically meant to finance your home renovation project. Personal loans, on the other hand, are a fixed sum you can borrow for any purpose.
Renovation Loan vs. Personal Loan
What sort of loan do you need to renovate your dream home?
Fortunately, there are two forms of loans that you can get to fund your renovation project: personal loans and loans for renovation provided in Singapore by licensed money lenders or banks.
The table below will assist you to have a better understanding of what is the difference between the two:
| Types of Loans | Renovation Loan | Personal Loan |
|---|---|---|
| Application of Loans? | Applicable only to homeowners or family members. A joint application is permissible. All income requirement needs to be met | For anyone who meets. The income requirement can apply |
| Are all banks offering such loans? | For banks that offer renovation loans – DBS, POSB, and OCBC, while other banking facilities like UOB, HSBC and Citibank do not | All banks |
| Interest Rate | Typically lower at about 3% to 4% p.a. | Usually higher than renovation loans |
| How is the interest charged? | Interest is charged on a monthly basis. This means the interest is charged based on the outstanding amount of your loan, therefore as you pay off your loan amount every month, the interest reduces over time. | Flat rate basis. Interest is charged based on the original loan amount. |
| Is there a maximum loan amount? | A maximum of S$30,000, or 6 times your monthly income, whichever is lower. | A maximum of S$30,000, or 6 times your monthly income, whichever is lower. |
| Is there a minimum requirement for the application? | An income of at least S$24,000 a year is needed. For joint applications, the main applicant must earn S$24,000 a year while the joint partner has to earn S$12,000 a year | Depending on bank requirements. A minimum requirement is S$20,000 |
| Loan Tenure | Between 1 year to 5 years | Between 1 year to 5 years |
To Illustrate
Say you want to borrow S$30,000 for your home renovation and want to repay it in five years.
If you’re taking up a renovation loan at a 4.18% interest rate, your total payable amount plus interest is S$33,296.
Note: The interest for renovation loans is calculated based on the outstanding balance of the loan. This means the interest reduces over time.
| 5-Year Renovation Loan at 4.18% Interest | ||||
|---|---|---|---|---|
| Year | Balance Remaining | Principal | Interest | Monthly Payment |
| 1 | S$30,000.00 | S$450.44 to S$468 | S$104.50 to S$86.94 | S$554.94 |
| 2 | S$24,490.00 | S$469.63 to S$487.94 | S$85.31 to S$67 | S$554.94 |
| 3 | S$18,745.22 | S$489.64 to S$508.73 | S$65.30 to S$46.20 | S$554.94 |
| 4 | S$12,755.66 | S$510.50 to S$530.41 | S$44.43 to S$24.53 | S$554.94 |
| 5 | S$6,510.87 | S$532.26 to S$553.01 | S$22.68 to S$1.93 | S$554.94 |
| Total Payable Amount + Interest | S$33,296.15 | |||
If you’re taking up a personal loan at a 7.9% interest rate, your total payable amount plus interest is S$36,411.43.
For personal loans, the interest is calculated based on the principal loan amount. This means your interest stays the same over time.
| 5-Year Personal Loan at 7.9% Interest (Flat Rate) | ||||
|---|---|---|---|---|
| Year | Loan Amount | Interest Per Month | Monthly Payment | |
| 1 | S$30,000.00 | S$106.86 | S$606.86 | |
| 2 | S$106.86 | S$606.86 | ||
| 3 | S$106.86 | S$606.86 | ||
| 4 | S$106.86 | S$606.86 | ||
| 5 | S$106.86 | S$606.86 | ||
| Total Payable Amount + Interest | S$36,411.43 | |||
Top Renovation Loans in Singapore
| Renovation Loan | Interest Rate | Max Loan Tenure | Max Loan Amount | Minimum Income Requirement | Processing Fee |
|---|---|---|---|---|---|
| DBS Green Renovation Loan | 3.88% p.a. | Up to 5 years | Up to S$30,000 or 6x your monthly income (whichever is lower) | S$24,000 | 0% |
| Maybank Renovation Loan | 4.1% p.a. | Up to 5 years | Up to S$30,000 or 6x your monthly income (whichever is lower) | S$30,000 | 0% |
| CIMB Renovation-I Financing | 4.1% p.a. | Up to 5 years | Up to S$30,000 or 6x your monthly income (whichever is lower) | S$24,000 | 1% |
| OCBC Renovation Loan | 4.18% p.a. | Up to 5 years | Up to S$30,000 or 6x your monthly income (whichever is lower) | S$24,000 | 0.5% |
Top Personal Loans in Singapore
| Personal Loan | Interest Rate | Max Loan Tenure | Minimum Annual Income | Processing Fee |
|---|---|---|---|---|
| HSBC Personal Loan |
| Up to 7 years | S$30,000 | S$0 |
| Standard Chartered CashOne |
| Up to 7 years | S$20,000 | S$0 |
| Citi Quick Cash (New Loan Customers) |
| Up to 5 years | S$30,000 | S$0 |
| UOB Personal Loan |
| Up to 5 years | S$30,000 | S$0 |
Things To Consider When Choosing the Best Loan for Home Renovation
Renovations are not cheap, so unless you’ve got much cash on hand, you’ll most likely have to turn to a home renovation loan to fund the improvement. Before you commit to any type of loan, consider these things:
1. Tenure of the Loan
In Singapore, banks will let you pay back the loan for a period of 5 years. Personal loans on the flip side come with a repayment term of up to 7- years. Therefore, if you plan to repay your mortgage for a more extended period, a personal loan will be a better alternative for you.
2. Amount of the Loan
Your next question to ask is, “What amount will I borrow, respectively, for a home renovation loan?”.
On average a 4-room flat renovation costs about S$40,000 to S$60,000, based on furnishing choices. Therefore, you would usually need to take out an amount of S$40,000 to S$50,000 for your upgrade if you don’t have the cash at hand. This may be the case if you’ve just paid a significant cash amount for the new home.
Renovation loans in Singapore have a limit of S$30,000. For instance, a local bank in Singapore allows you to take a minimum loan amount of S$10,000. In contrast, some local banks have S$5,000; the idea is to ensure you do your research when applying for any home renovation loans.
3. Interest Rate
The cost of borrowing is undoubtedly one of the primary considerations if the rate is high then just as taking out an HDB loan. Some banks offer their loans based on a percentage of the monthly balance, and some use a flat rate.
The main difference between the two is that interest is paid on the outstanding amount on a monthly rest package. That means you are paying less interest over time when you pay off the loan. A flat rate bundle is where the interest based on the entire principal is measured at the outset.
Since interest rates on renovation loans are usually lower than personal loans, to apply for one, you must meet specific eligibility requirements for personal loans. This involves being an owner of the property to be restored, becoming a Singapore resident or PR, having a decent credit score, and meeting the minimum criteria for income.
From our perception, we may see flat rates are usually lower. However, borrowers will need to take into consideration the effective interest rate.
Should You Take a Renovation Loan or a Personal Loan?
Personal loans and renovation loans may seem similar as both loans offer tenure that ranges up to 5 years. Plus, both loans offer up to S$30,000 or 6x your monthly income. However, personal loans tend to have higher interest rates, especially when you consider the effective interest rate.
Key Takeaways
- The average renovation cost of a 4-room HDB BTO can set you back between S$16,000 and S$140,000.
- Renovation loans are applicable only to homeowners or family members. Personal loans, on the other hand, are available for anyone who meets the eligibility requirements.
- With a personal loan, you can use the loan proceeds for anything – you are not limited to using it for home renovation expenses.
- For renovation loans, interest is charged based on the outstanding loan amount so the interest payments reduce over time.
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