Renovating your dream home can be an exciting and rewarding process. However, it can also be expensive, and not everyone has the cash on hand to pay for it. That’s where financing options come in. In this article, we’ll explore the various financing options available for homeowners in Singapore who are looking to renovate their homes.

Before we dive into the specifics of each financing option, it’s important to note that you should always have a plan in place for how you will pay for your renovation. This includes creating a budget, a discussion with other homeowners like your spouse, deciding and prioritising what elements of the renovation are most important to you, and exploring financing options that work best for your situation.

Why Does One Consider Taking on a Loan?

Many people find themselves needing to take on a loan for their home renovation due to a variety of reasons. For example, if you’ve recently gotten married, you may be facing multiple financial payments stacking up, such as a wedding, house downpayment, and furnishing. (Sounds too familiar? We heard it all from our DTF peeps.) Taking on a loan for your renovation can help to ease the financial burden and make it easier to manage your cash flow.

1. Renovation Loan

One of the most popular financing options for home renovations in Singapore is a renovation loan. This loan is specifically designed for home renovations, and it’s offered by various banks and financial institutions in the country. The upside of a renovation loan is that it typically has lower interest rates than other types of personal loans, and the repayment period can be as long as five years. However, you’ll need to provide detailed information about your renovation plans, including the contractor you plan to use and the cost of the renovation. Typically, you may borrow up to S$30,000 or 6 times of monthly income, and the current interest rate is about 4%. Be sure to compare the various banks and the current reno loans they have available.

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2. Personal Loan

Another option for financing your home renovation is a personal loan. This loan is unsecured, meaning you don’t need to provide collateral such as your home or car. Similar to a renovation loan, personal loans are typically offered by banks and financial institutions, and the interest rates and repayment periods vary depending on the lender. The upside of a personal loan is that it’s quick and easy to obtain, with minimal documentation required, and you may potentially get a higher loan amount. However, the interest and processing rates are typically much higher than other types of loans. As of now, interest rates are about 8%, which makes it a less favourable choice compared to renovation loans.

3. Store Loans

Many furniture and home decor stores offer financing options for their products. We have included this option as it can be a convenient way to finance your renovation, as you can get the furniture and decor you need while spreading out the cost over time. Have you ever bought furniture at IKEA and been offered to take a loan on it? Many furniture/decor stores that aid in the renovation process offer interest-free store loans for a certain period of time, typically 6 to 24 months. The downside is that if you don’t pay off the loan within the interest-free period, the interest rates can be high!

Case Study

To give you a better idea of what financing options might be right for you, let’s take a look at a case study.

According to Qanvast, the average cost of a 4-room HDB home renovation in Singapore is around $62,800 for a 4-room.

Let’s say you’re a young couple earning the median pay in Singapore, and you’ve decided to renovate your home. You’ve decided to take out a store loan for $10,000 to cover the cost of new furniture and decor, and a renovation loan for $30,000 to cover the cost of the actual renovation. You’ve chosen a five-year repayment period for the renovation loan, which has an interest rate of 4%. Your monthly payments for the renovation loan will be around $553, and a total of $3,150 paid plainly for interest. As for your monthly payments for the store loan, assumed to be 0% interest will be around $833 for a 1-year tenure making total monthly loan payments for both loans to be around $1,386.$1,386

Should you go for a loan even if you can afford the payments?

When it comes to financing a home renovation, taking out a loan may seem like a convenient solution, but it’s important to consider whether it’s the best option for your financial situation. If you have sufficient savings to cover the renovation costs, it’s advisable to pay for it out of pocket to avoid accumulating more debt and paying higher interest rates in the long run. However, if you don’t have enough savings, it’s important to prioritise your renovation expenses and only consider a loan if it’s necessary.

Final thoughts

While we always recommend planning for your financial goals ahead of time, unexpected situations may arise where you need to finance your renovation abruptly. In such cases, we suggest opting for a renovation loan with a short tenure to minimise the interest payments. Additionally, it’s crucial to understand your options, set a realistic budget for your renovation and work with a reputable contractor or interior designer who can guide you through the process.

Nonetheless, do your research and compare interest rates, repayment terms, and other factors among different lenders. Proper planning and financial management can help you turn your dream home renovation into a reality while staying within your means.