Buying a new house is not an easy decision to make because there are a lot of factors to consider.
For most people, they will need to consider which mortgage loan is perfect for their needs as mortgage loans are now offered by a wide variety of lenders and financial institutions. Each one offers a different rate, making it difficult to determine which one is the best. Once a loan program is considered, the next thing to consider is if they need to renovate the house and if they need to get a renovation loan for it.
Renovations are an expensive business as it can amount from $15,000 to $100,000 depending on how much you want to change in the house. If you already made a downpayment for the house using the mortgage loans, where will you get the extra amount needed to make your house your dream home?
Fortunately, renovation loans are offered by both banks and moneylenders to help homeowners the chance to pay for their home’s renovation costs which they can pay within five years or more depending on their preferences.
However, what are renovation loans and what do they entail?
What is a renovation loan?
As the name implies, renovation loans are loans that can be used for house renovations. They are there to help you finish your renovations and it could be bathroom renovations to a house makeover.
Banks in Singapore offer renovation loan programs, but the terms and conditions vary. Moneylenders and other financial institutions also offer them for borrowers.
Where Can You Use a Renovation Loan?
Who is Eligible to Apply?
Interest rates for renovation loans are very low as compared to personal loans, and as a result, you need to fulfill a special criterion to get one for your home.
First of all, you need to be the owner of the property being renovated and you must be a Singaporean or a permanent resident. You must also have a good credit rating and ensure you are within the minimum income threshold for this loan. Each bank and moneylender differ with regards to the income requirement, so it is ideal you check before you apply.
Current Cost of Home Renovation Loans
For old homes or HDB flats which are now 15 years old and up, it is best you renovate it to ensure it is updated and safe. You also need to get damaged areas repaired so it won’t be a safety risk.
Home improvement is very common in Singapore, but it is not very affordable considering the cost. Singaporeans who own HDB flats tend to spend around $50,000 to $60,000 just for renovations; which would then increase their house value up to 20%.
Considering the fact renovation is a high value project, home renovation loans have very good rates that would fit any type of renovation.
Renovation Loans Vs. Personal Loans
If you need funds for your renovations, you should get a renovation loan instead of getting a personal loan. While a personal loan does the same job as that of renovation loans, banks and moneylenders check a person’s credit risk and where they will use the money to determine if they should lend you money.
For many banks, the fact they will not be informed about where the money will be used presents a high risk for them. They will still be open in offering personal loans, but it will have high interest rates. While moneylenders are a bit lenient about this fact when they assess a person’s loan application, they do prefer knowing where the loans will be used.
On the other hand, renovation loans are very specific. Since the moneylender or bank will know where you will use the money, the loan they will give you has a lower interest rate. Normally, personal loans come with an effective interest rate of 12 to 15% and for renovation loans, they are at 6 to 7%.
How to Apply for a Renovation Loan?
Nowadays, renovation loans – and other types of loans – can be applied for online. However, before you do apply for a renovation loan, it is important to consider the following points: