Home Renovation Loan

Getting to buy a house of your dreams is a thing, but making the house absolutely perfect and comfortable to live in is a chosen journey that involves investment. Home renovation, be it for improving the structure, adding a room, or just beautifying the home is a wise thing. Granted, it can also be a financial drag. But all of this could change with a home renovation loan that would help us ameliorate the house into the home of our desire. In this article, we explain the different types of these loans, their pros and cons, as well as the things to do to obtain this loan from the bank or any good financial institution.

Types of Loans for Home Renovation

There are several types of loans that can be used for home renovation, depending on your needs and financial situation. Here are some main options:

1. Personal loan: This is one of the easiest and fastest types of loan to obtain. You need not put up any collateral for the loan, but the price of the money may be higher than it would be if you were offering an asset as collateral.
2. Home Renovation Loan: This is a loan typically available for home renovation and generally has a lower interest rate when compared to personal loans. In most cases, the house which is required to be renovated is provided as collateral for the loan. If you are a private sector employee, then the built-in flexibility makes this a better choice.
3. Overdraft or Short-Term Loan: If you require a small sum of money for a short time only, you might consider an overdraft or short-term loan, but we do not recommend one for large renovations.
4. Home Loan: Some banks allow one or additional loans based on the value of the home (loan top-up) for renovation purposes. You can use your home as collateral to avail additional funds.

Advantages and Disadvantages of a Home Renovation Loan

Understanding the Pros and Cons of a home-renovation loan is crucial before applying for it. Basic knowledge of both the aspects make you thus wise.

Advantages of home-renovation loan:

• Lower Interest Rates: Home renovation loans usually offer lower interest rates compared to regular personal loans. This makes them a more affordable option if you plan to carry out major renovations.
• Flexible Repayment: Most home renovation loans allow you to pay the loan in installments in different time periods. You can choose the mode of repayment according to your convenient monthly payment. For private sector employees, this flexibility is of great help in making calculations.
• Appreciation of Property Value: Renovations can lead to a marked increase in property worth. If a sale is in your future, this is a good long-term investment.
• Enhanced Enjoyment: Not only will it look good, but you'll enjoy spending time at home more when it’s attractive.

Disadvantages of Home Renovation Loans:

• High Interest Costs in the Long Term: The interest rate may be lower than that of an unsecured personal loan but it’s taken out for a longer period of time, meaning the total interest may be higher.
• Risk of Losing Your Home: If you choose to use your home as collateral for the loan, you run the risk of losing it if you cannot make payments. Do you think you will be able to make repayments?
• Financial Responsibility: Taking a loan for home renovation means more financial burdens on your shoulders. Monthly income has to be enough to cover this plus other obligations.

Requirements to Apply for a Home Renovation Loan

Loans have different conditions but applicants must meet some basic requirements:

• Age of Applicant: Generally between 21 to 60 years on loan maturity.
• Monthly earnings: Prospective borrowers should possess a certain level of monthly earnings to indicate that they’ll be able to meet the loan repayments.
• A strong financial position: Lenders will want to see a good credit history so they know that you’re financially reliable.
• Collateral: If your loan is collateral based, as a home renovation loan often is, then the home to be renovated need to be pledged as collateral.

Best Banks for Home Renovation Loans

In Malaysia, the best banks for home Renovation loans with excellent interest rates are.

• Maybank – Home renovation loans with low interest rates and flexible repayment terms.
• CIMB – Lets applicants select either a secured or unsecured loan based on their needs.
• RHB Bank – Ultra-low requirement for a home renovation loan also combined with a quick application process.
• Bank Islam - Like most local lenders, the home renovation loan requires the applicant to take up additional policies such as fire insurance, term insurance, mortgage reducing term assurance among others. In turn, the bank offers customers Shariah-compliant loan products throughout the platform.

Home Renovation Loan Application

The home renovation loan application process is relatively easy and here are the simple steps that are involved for the homeowner -

Documents Required:

• Copy of ID / Passport
• Salary Slip or Income Statement
• Proof of Address (Utility Bill or Bank Statement)
• Sale and Purchase Agreement or Property Title Deed
• Renovation Plan or Proposed Renovation Cost (If Required by Bank)

Home Renovation Loan Rates of Interest

The interest rate of a home renovation loan will vary from loan to loan and will depend on the type of loan you opt to take, repayment duration and loan size. The rates are, however, comparable to the interest rates on regular loans and will vary by the credit rating of the borrower and the overall loan risk. If you’re planning on needing an instant loan, take care to ensure that you take the loan most suitable to your needs in terms of repayment.

 

Alternative Financing Options Other Than Bank Loans:

• EPF withdrawal: You can also withdraw from EPF Account 2 for home renovation during the savings period. This is however only allowed for specific purposes such as, repairs or improvements for structural stability, or to render premises habitable.
• Cooperative Financing: Some cooperatives offer financing for home renovation with more flexible conditions, especially for their members.

EPF Withdrawal for Home Renovation

EPF Withdrawal for Renovating a Home EPF withdrawal for home renovation can lighten your financial load. You can withdraw savings from Account 2 for the purpose of repairing your home, as long as it meets the condition set by EPF to improve the safety and comfort of the home.

Considerations in Home Renovation Loan Approval:

• Credit Score - The more likely your proposed plan of action reminds the lender of successful plans they’ve funded in the past, the better your chances of being approved.
• Monthly Income - The lender of course has to see that you can pay back what you borrow.
• Collateral Valuations - Value of the home to pledge if that is the loan arrangement.

By understanding these factors, you can better prepare for your home renovation loan application.

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