You might have funds tucked away in other investments or you might want to keep spare cash around in case of an emergency. Whichever the case, you’re looking into getting a loan for your home renovation, which is a huge expense. But where do you start?
Image courtesy of Kuro+
There are instances where you can get a loan from the interior design firm you’re signing up with. Not every firm offers this though, so most homeowners approach banks instead. The majority of banks (DBS/POSB, CIMB, Maybank, OCBC and RHB) here in Singapore offer a specific home renovation loan, and getting one with them isn’t as complicated as it sounds. Here’s what you need to know:
What can I use my home renovation loan for?
Home renovation loans cover the costs of your renovation. These typically include works like carpentry (e.g. built-in wardrobe, kitchen cabinets), electrical and wiring, painting, flooring, tiling, sanitary fittings and structural altercations (e.g. hacking of walls). The loan can be used for renovation in all types of residential housing including BTO, HDB, condominium and landed homes.
Tiling and carpentry works can be covered under your renovation loan.
Design: The Interior Lab
What does it not cover?
A home renovation loan does not cover furniture or appliance purchases. So no, it’s not going to cover air conditioning or that built-in oven from Bosch and fancy designer sofa you’ve been eyeing. Some banks like RHB do offer a separate furnishing loan if you need financial help with your furniture purchase.
Your renovation loan cannot cover major appliances like your hob, hood and oven.
Design: DB Studio
How much can I borrow?
All the banks loan up to $30,000 or six times your monthly salary, whichever is lower. The minimum loan sum is $5,000 for DBS/POSB, OCBC and Maybank, and $10,000 for CIMB and RHB.
Am I eligible for the loan?
All applicants have to be either Singaporean or Singapore PR. For joint applicants, the relationship between applicants needs to be that of parent/child, spouses or siblings, both of whom must be employed. Age and income eligibility requirements differ from bank to bank:
| Age | Single Application | Joint Application | |
| DBS/POSB | 21 to 50 years | Min. income of $24,000 per annum | Main applicant needs a min. income of $24,000 per annum, while joint applicant needs a min. income of $12,000 per annum |
| CIMB | 21 to 50 years | Min. income of $24,000 per annum | Min. income of $24,000 per annum |
| MAYBANK | 21 to 55 years | Min. income of $30,000 per annum | Combined min. income of $30,000 per annum with main applicant earning a min. of $24,000 |
| OCBC | 21 to 59 years | Min. income of $24,000 per annum | At least one applicant needs a min. income of $24,000 per annum |
| RHB | 21 to 55 years | Min. income of $30,000 per annum | Both applicants need a min. income of $30,000 |
How much interest do I have to pay?
| DBS/POSB | Effective interest rate of 5.11 to 8%, depending on loan tenure |
| CIMB | Effective interest rate of 4.85% |
| MAYBANK | Monthly rest rate of 4.33% per annum, based on $15,000 loan amount with a minimum loan tenure of 4 years |
| OCBC | Effective interest rate of 6.08% p.a. for a loan amount of S$30,000 with a 5-year loan tenure |
| RHB | Flat rate package – for loan amounts below $15,000 the effective interest rate is 7.27 – 8.60%, depending on loan tenure. For loan amounts between $15,000 to $30,000, the effective interest rate is 6.02 – 7.32%, depending on loan tenure. Monthly rest package – effective interest rate is 6.16 – 7.61%, depending on loan tenure. |
Tip: Some of the banks also offer a more competitive interest rate if you are currently taking a home loan with them as well.
What do I need to apply for the loan?
Besides personal documents like your IC, proof of income and ownership of your home, and proof of relationship (if it’s a joint application), you will need an invoice or quotation signed between you and your interior designer/contractor and a copy of your renovation permit. For private properties, the permit is issued by the managing agent. For HDB flats, the permit is issued by HDB. Note that only one signed quotation/invoice can be submitted.
How long do I have to pay back the loan amount?
The loan tenure period ranges from one to five years.
Are there other hidden costs I have to pay?
Banks usually charge a processing/handling/administrative fee of 1% of the approved loan amount, which is payable upfront upon disbursement. For DBS/POSB, there is an additional insurance premium to purchase, which is another 1% of the approved loan. Manulife will pay off your outstanding renovation loan balance in the event of death or permanent disability. For OCBC, there is an additional $200 processing fee to pay on top of the 1% administrative fee.
How long do I have to wait before my loan is approved?
Most banks take approximately one working day to approve the loan, provided you meet all the criteria. You will receive a mail to notify you of your loan approval.
Now that my loan is approved, when will I get the money?
You won’t actually get the money per se, as the sum is disbursed via a (or several) cashier’s order(s) issued in your contractor or interior designer’s name. The cashier’s order or orders are given at one go by the bank once the loan is approved. You can then submit the cashier’s order or orders to your contractor or interior designer as per your agreement with them.
You can choose to disburse the loan amount in one lump sum in a single cashier’s order or split over multiple cashier’s orders for progressive payment to your contractor or interior designer. Note that some banks impose a maximum number on the cashier’s order you can request for, while others levy an extra fee for any additional cashier’s order.
Getting a home renovation loan from the bank
What if I decide to change an interior designer or contractor at a later stage? How will that affect my renovation loan application?
According to Ms Lynn Yan, CIMB Singapore’s vice president of product management, credit cards and personal financing, a fee is usually levied if there is a need to amend the interior designer or contractor under the payee’s name on the cashier’s order. In OCBC’s case for instance, a $250 fee is levied in the event of a change involving the name of your contractor or interior designer after the loan has been disbursed.
What happens when the interior designer or contractor doesn’t fulfil his or her responsibilities based on our contract or the company closes down—will I be able to get the money back from the bank?
As the loan is between you and the bank, you will still be liable for the amount borrowed. Instead of issuing the entire loan sum to your contractor or interior designer in a single cashier’s order, Ms Yan advises homeowners to split their loan amount into multiple cashier’s orders and to make payments only after satisfactory completion of the job agreed upon.
Is a personal loan a good alternative to a home renovation loan?
Not quite! Effective interest rates for personal loans are usually a lot higher, and the loan amount is usually lower.
Will you be getting a home renovation loan with a bank? Let us know your thoughts in the comments!
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