Embarking on a Full Home Renovation? Here’s How To Not Screw Up Your Finances
My idea of home renovation might involve lots of Blu-Tack and masking tape, but don’t let that stop you from hiring a real interior designer if you don’t want to humiliate yourself when HDB comes barging in, since it looks like HDB officers will soon be authorised to enter by force.
Still, home renovation comes at a bad time for most people. You only buy champagne when you’re flush with cash and all celebratory, but when do you renovate your home? When you’ve just spent thousands on a wedding or coughed up your entire life savings to pay for a downpayment.
Before you get ready to fling your piggy bank to the ground and start scooping up coins to fund your home renovation, save yourself a lot of grief by following these steps to budgeting and financing the transformation of your home from ghetto to glamorous.
Firm up your home renovation plans and get a quote
Before you start renovations, your interior designer and/or contractor will give you a quotation for a sort of package. In general, HDB renovations tend to cost between $30,000 and $50,000.
Sadly, renovation prices are much like prices in Singapore and my blood pressure—they never stop going up..
After commencing work, you might decide to make new modifications or use different materials. Or your contractor could just be a big crook. Whatever the reason, you should try to leave a buffer of at least 10% so you won’t have to turn to evil loansharks.
Work out how much to save up each month
If you have a home renovation on the horizon, there’s a high chance you’re also planning a wedding, a big move or sorting out your home loan. That’s why people who have to pay for renovation tend to be extremely ill prepared… so much for multitasking.
Wait till the last minute and you’re going to be running to the bank trying to get a loan for the entire sum of your renovation. On the other hand, plan ahead and you won’t have to borrow as much money, meaning your renovation just got cheaper without your having to trade blows with Mr Phua the contractor.
Starting from today, work out how much time you have to save up for the renovation. Then, based on the amount of time you have left, determine the monthly sum you need to set aside.
The good thing about doing this way in advance is that psychologically it makes you really see how much you’re spending. If you have to subsist on a diet of celery sticks for 6 months, chances are you’ll end up going with less costly renovations because it’s just too darn painful.
On the other hand, if you wait till the eleventh hour and the bank offers to lend you the full amount, with no suffering on your part it’s all too easy to say yes.
Work out how much you need to borrow
After doing your sums, you’ll have some idea as to how much you can afford to pay in cash—and how much you need to borrow.
Because you’ve been resourceful enough to start planning in advance, that also means you’ll have a bit more time to scout around for the best renovation loan.
Notice that we say “renovation loan” and not “personal loan” or “Ah Long loan”. That’s because the more specific your loan, the lower the interest rate tends to be. Let’s just say you don’t want to sign up for the same loan as that guy who needs the money so he can build the ultimate gaming computer.
Just because your mahjong kakis recommend X Bank or the bank where you got your home loan is urging you to just sign up for their renovation loan package doesn’t mean you’re getting the best deal. After all, every shopkeeper at Sim Lim insists their iPhones are the cheapest, too.
Check out comparisons of renovation loans in Singapore and get in touch with the banks to see how much of a loan you can be approved for, BEFORE you call Phua Chu Kang.
Have you ever undertaken a home renovation? How did you budget? Let us know in the comments!