ST Explains: What to consider when taking a loan to fund home renovation

by Albert02

ST Explains: What to consider when taking a loan to fund home renovation

ST Explains: What to consider when taking a loan to fund home renovation. For most people, purchasing an apartment is a big financial investment, and making changes to your new property may present the unnerving prospect of incurring further debt at a time when interest rates are rising. Renovation costs can range into the tens of thousands of dollars, depending on the complexity of the work, so how will you fund it?

You cannot buy an apartment with Central Provident Fund funds or a Housing Board loan because these are only available for home purchases.  You might take out a remodeling loan, which is a sort of unsecured debt, which means you don’t have to put up collateral and the bank can’t seize any of your goods if you fall behind on payments.

Renovation loans are available from DBS Bank, CIMB, Maybank, and OCBC Bank, however RHB discontinued giving them this year due to a lack of demand. Rates for a loan of up to $30,000 with a five-year term range from 3.88 percent to 4.88 percent per year. DBS and OCBC also provide green remodeling loans, with borrowers receiving a 20 to 30 basis point reduction for installing eco-features such as energy-efficient lighting or ceiling fans instead of air conditioners, as well as switching to a green electricity vendor.

Existing DBS and Maybank home loan customers who take up a remodeling loan receive additional perks. Maybank offers a low annual rate of 3.88 percent, and DBS HDB home loan customers who apply for a renovation loan before the end of this month will receive a free multi-cooker.

Borrowers should study the fine print on renovation loans, according to Mr Erik Ligtenberg, chief operating officer of Singapore-based online loan comparison portal Lendela. “Renovation loans are unique in that they include additional costs such as a personal expense charge for transferring funds directly to your contractor and an additional fee penalty if you exceed your cashier’s order limit,” he explained.

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