Should you get a renovation loan?

Sometimes, its the only way for us to get our dream home. But it is not as cheap as we think, and its gonna get even more expensive.

Watch our tiktok video on this if you lazy to read.

Renovation loan, or any loan in general, has many T&Cs and marketing gimmicks that make it seem more attractive/confusing than it is. So here’s a no-nonsense straightforward guide on renovation loan.

1. You can only borrow up to $30k
Given that the average cost of a 4-room renovation costs $45,600, you must be prepared that you can’t borrow the full amount.

Two key pointers on this: (1) The average cost can definitely be lower as the big players are charging a higher mark-up. That’s why “value-for-money” is one of our key criteria to onboarding a partner. (2) If your renovation does indeed go beyond $30k, you can actually borrow from a few banks.

2. Ignore the marketed rate - find out what the actual cost is
Banks like to make it complicated and confusing. We found that the best way for someone to decide is just to be clear on what the additional cost is, instead of relying on the marketed interest rate.

In short, the question you should ask yourself is “are you okay to pay $X to borrow $30k over Y no. of years?”

There are 2 payments that you have to consider:

(A) Processing Fee
- Normally about 1-2%. This means that, for a 1% processing fee on a $30k loan, you lose $300, as you only get $29,700 in reality.

(B) Interest
- It’s too complicated. Just use this calculator by the government, to find out the total interest payable.

Add those two payments up (A) + (B), and you get the total cost of borrowing.

*Likely to adjust interest rate upwards

Above is the total cost of borrowing the full $30,000 based on current conditions.

Hence, removing all the noise, you should ask yourself “am I okay to pay ~$2.5k to borrow $30k over 3 years?”, or whichever permutation it is.

3. The rates are likely to go up
Let’s go back to the chart.

(A) Go for OCBC or CIMB now if you can.

DBS & Maybank have increased their rates; we foresee that at least OCBC & CIMB will raise theirs in the very near future, as interest rates soar.

It is likely to raise from the current 4% to 6%.

This means that the current $2.5k cost is likely to balloon to $3.2k for a 3 year loan tenure.

(B) Renovate within your means

As the rates increase, it becomes more unsustainable to go for lavish renovation.

Conclusion
On average, renovation loan costs you an additional $2.5k, with this number likely to increase very very very shortly.

Even as we continue to find reliable & affordable partners, be mindful of how this renovation loan can still impact your finances, especially if you choose to repay over a longer period of time.

Follow us below to hear more!