A renovation loan is one of the best ways for property owners to finance their home renovation projects. Unfortunately, most people don’t even know they exist or how they work.
Whether you’re buying a new property or currently living in an old house and want a fresh look, renovating your home is a standard procedure most will go through. However, renovation costs in Malaysia typically can cost you a hefty sum.
While you could do more research to find the best possible renovation costs, the reality is those home improvements will require some financial planning on your end.
And unless you have plenty of money sitting around for you to use, you’re probably looking for ways to fund your house renovations.
While most people will recommend you take out a personal loan to finance the renovations, that isn’t the only solution you have.
A renovation loan is an excellent alternative to a personal loan. If you are interested, read on to learn more about renovation loans and why you should use them to fund your home renovation in Malaysia.
What Is A Renovation Loan?
A renovation loan is an unsecured mortgage a homeowner can borrow to cater to home upgrades and minor and major repairs. It is available in a lump sum and can be repaid in instalments that may last up to 12 years.
Unlike other mortgages, a renovation loan does not require you to include your home as collateral. Instead, financial institutions use the projected home value after its repairs to determine your loan amount.
Moreover, its interest rates depend on your earnings and credit standing and are lower than other common financing options, such as a credit card and personal loan.
Why Should Homeowners Apply For Renovation Loans?
Surprisingly, many homeowners are unaware that renovation loans exist. In Malaysia, cash-out refinances, and home equity loans are the two most common financial products used to pay for home renovations.
However, neither of them is designed for the purpose of renovating a property.
Cash-out refinances and home equity loans rely on the existing equity homeowners have based on their home’s current value. Hence, while they may work for long-term homeowners who have built up lots of equity, they’re not built to help recent buyers.
Thankfully, however, renovation loans are. They are based on the future value of your home after the renovation.
This key characteristic increases how much you can borrow because it allows homeowners to tap into their future equity while ensuring they get the lowest rate possible.
Read More: How Your DSR Affects Home Loan Eligibility
What You Should Know Before Getting A Renovation Loan
1. Consider The Benefits of Your Renovation Project
You should only apply for a renovation loan if you’re confident that your renovation project will reduce your long-term costs or increase your property’s value.
Examples of popular home renovation projects include:
- Remodelling your bathrooms and front doors
- Roof repairs
- Updating windows
That said, do not invest too much in your renovations. You do not want the improvements to make your house overly expensive in comparison to the other properties in your neighbourhood.
2. Know Your Budget
Homeowners should understand all the costs involved in their renovation project and have a solid sense of their budget.
Knowing how much you can spend will protect you from wiping out your savings with home repairs and renovations and defaulting on a renovation loan.
3. Take Your Time
Finally, don’t rush to renovate. Research the available rates, and remember that remodelling is often more expensive and time-consuming than you may assume.
You should also ensure that your finances can handle the burden of another home loan.
Read More: Sharing a Home Loan: Yes or No to a Joint Home Loan
Home Renovations With Rumah-I
It’s always an exciting moment to bring your dream home to life, but it’s equally important to ensure that you don’t go overboard with your home renovations.
Taking out a loan is also a big decision financially. You’re not just paying for the amount of money you loaned but also the compounded interest rate from the bank.
If you still want to renovate your home but do not want to apply for a renovation loan, Rumah-i can help. We are partnering with Livspace, Asia’s fastest-growing interior design and renovation service provider.
With modern designs and expert interior designers, our makeover service can transform your home at an affordable price, adding value to your property.