Renovation Loan FAQ

Renovation Loans FAQ

1. Is it advisable to take on a Renovation Loan?

As pointed out in my Will Renovation Raise your Property Value post, it is not wise to view renovation as a return on investment (unlike Study or Home Loan). Thus, I will advise you not to take on a Renovation Loan. However if you have to, keep in mind to keep the loan amount small and manageable. 

2. What is the minimum and maximum renovation loan amount?
Minimum loan amount: SGD $10,000
Maximum loan amount: 8 times of your monthly income or SGD$30,000 (whichever is lower). 


3. What is the minimum and maximum loan tenure?
Minimum loan tenure period: 1 years
Maximum loan tenure period: 5 years

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Ways to Save during a Renovation

 

 Ways to Save during a Renovation

1. Engage an Interior Designer or Contractor during “off-peak” (low-on-demand) seasons

Demands for Interior Designers or Contractors are usually high beginning of the year and end of the year since these are months which lead to festive seasons like Christmas and New Year. Hence, it’s best to avoid getting quotations and engaging their services during that period.

2. Compare quotations from a few Interior Designers or Contractors

Don’t be lazy and engage the first Interior Designer or Contractor which you have met. Do let them know that you are comparing their prices and will choose one that offers a good price with quality workmanship.

3. Plan ahead and determine which part of the renovation you can DIY

List down all the possible renovation tasks that you can do by yourself. You can also save money from your house renovation by doing such easy tasks like painting. However, be mindful that you should be confident or at least do some research before the DIY. Otherwise you might end up spending money to recover from your mistakes.

4. Purchase your own supplies for the renovation

If possible, buy your own supplies such as lighting bulbs, paint, switch covers and bathroom fixtures. You should be charged only for the labor and nothing more.

5. Consider the long term costs impact of your home renovation.

Think about the effort and money that are needed to upkeep an expensive sofa, or the high electrical bills due to an energy inefficient refrigerator. Be mindful of the maintenance costs and also by using energy saving products now, it will save you a substantial amount of money in the long run.

6. Reuse or purchase second-hand items!

The amount of money saved from reusing your existing TV, computer chairs, dining tables etc is a lot. So, look for your furnishing and electrical needs from garage sale or at places like thrift shops or internet sites.

7. Sell off stuffs which you do not want!

Similarly, get back some cash by selling off old clothes, furniture, electrical goods etc during garage sale, at thrift shops or internet sites.

8. Lastly, setup a gift registry or encourage your house warming guests to give cash (“Ang Paos”) or vouchers as gifts

Most house warming guests will not turn up empty handed. So instead of letting them go through the hassle of getting something which you already have or do not want, inform them in advance that you prefer practical gifts like cash or vouchers.

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CPF Contribution & Allocation Rates changes (from 1 Sep 2011)

 Extracted from the CPF site:

 From 1 September 2011, the employers’ CPF contribution rate is increased by 0.5 percentage point. For employees who are above 35 years old and earning monthly wages of up to $1,500, the higher employer CPF contribution rate will continue to be phased in from 0% at the wage of $50 to the new full rate at the wage of $1,500. The increased contribution will be credited to the employees’ Special Account (including those above 55 years of age).

However, the additional 0.5 percentage point does not apply to graduated employer and employee rates for first or second year Singapore Permanent Residents (SPR) and their employers.

The new CPF contribution amount can be computed using the CPF Contribution Calculator or determined using the CPF contribution rate booklets.

** This is the table meant for:

       (1) Private Sector Employees
       (2) Non-Pensionable Employees (Statutory Bodies & Aided Schools)
       (3) Non-Pensionable Employees (Ministries)

       Note: For (1), (2) and (3), the Ordinary Wage Ceiling is $5,000.

I have actually done up an excel  sheet showing how  the CPF contribution of an ordinary Singapore couple, with a combined gross income of $4500,  will look like. I have made an assumption that there is a wage increase of $100 per year for this couple, and there is no income ceiling for them.

You can use this CPF template** to forecast how your housing loan matches up with the CPF contribution as you age. This is pretty useful for you to predict when cash is needed when the CPF contribution is lower than your monthly housing loan deduction. Just beware not to mess-up the formula used in the excel sheet. :)

A gentle reminder that the Ordinary Wage Ceiling is $5,000, which means the CPF contribution rate will still be based on $5,000 even if your income exceeds $5000.

Hope you find the template useful. :)

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Mortgage Calculators

For home-owners who are looking at refinancing their mortgage loans, or simply at the amount of loan they have to pay to the banks when the interests fluctuates,  

is a very useful website that can assist you. Extracted from the site, here is  very brief overview of the types of calculator which you can use:

Mortgage Payment Table Calculator

Simple Loan Payment Calculator

and so on. This is an American based site. For the Singapore based Banks, the mortgage calculator is as follows: 

Standard Chartered Singapore Mortgage Payment Calculator

UOB Singapore Mortgage Payment Calculator

OCBC Singapore Mortgage Payment Calculator

Hope you find it useful. :)

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HDB Loan vs Bank Loan

Most couples did not do adquate ground work prior making the biggest purchase in their lives. Most went straight for bank loans, enticed by the freebies and low bank rates. While others opt for HDB loans because they are too lazy to shop around for the best rates.

So, what are the pros and cons of going for HDB Loan as compared to Commercial Bank Loans? Some of the advantages I can think of as follows:

1. If ...for any reasons, you had defaulted HDB loan payment, the risk of foreclosure is lower. HDB will try to arrange for means and ways for you to make repayment.
2. HDB rates are fixed (2.6%) whilst most of the bank rates fluctuates with economy.
3. No hidden cost. But there are hidden costs if you decide to switch from one bank to another and these were not highlighted to most people.

What about disadvantages?

1.  Many restrictions; you need to meet the eligibility Conditions for HDB Concessionary loan. One of the conditions is that if your combined income level is above 8k, you can't apply.
2. You need to apply for HDB Loan Eligibility(HLE)  prior application for the HDB concessionary loan.
3. Inflexible; once you switched from HDB loan to a bank loan, you are not allowed to switch back to HDB loan.

Here are some of the other useful resources you should take a look to find out more:

1. Should you switch from HDB loan to a Bank loan?
2. Housing Loan FAQ
3. MortgageSmart FAQ

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Renovation, Furniture and endless Loans!

Thinking of taking up renovation and furniture loans?

Besides shopping for the lowest interest rates, what else do you have to look out for? The loan limit? Repayment period?

That is only half the homework done.

Not a lot of people realise that it is recommended that the monthly installments (inclusive of study and car loan) shouldn't exceed 20% of their combined take-home pay.

Thus, its better to plan carefully, spend wisely and not get too carried away (and bust your budget) during renovation. :)

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What's your budget?

Many people set aside money for renovation. However, most neglect the other critical aspect when doing up their dream home: furnishing and essential household appliances.

To sum up, the big dream home project makes up of the following components:

1. Renovation (which includes painting of walls, adding shifting of lighting points etc)
2. Furnishing (furniture, curtains/blinds etc)

3. Household appliances (washing appliances, TV, fridge etc)

I have seen people dumping as much as S$70k in the renovation and left little for furnishing and thus, the end result is pretty lopsided. Remember, renovation only setup a "base"; only with appropriate furnishing that the character of the place will be brought out.

Last thing to note is that usually people tend to exceed their budget by 20%-30% on average. Thus, keep this in mind. ;)

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