A renovation loan is a term loan used to pay for renovation works on a home. It is unsecured, so the property is not pledged as collateral, and it is repaid by instalments over a fixed period.
Key takeaways
- A renovation loan is typically structured as an unsecured term loan, with no asset pledged; MoneySense notes that interest rates on unsecured loans tend to be higher than on secured ones.
- Interest on personal term loans is commonly quoted as a flat rate, calculated on the original amount, so the Effective Interest Rate is higher than the advertised rate.
- MAS requires renovation loans to be counted in a borrower total monthly debt obligations when a lender computes the Total Debt Servicing Ratio against the 55% threshold.
- Renovation is not among the CPF housing uses — CPF Ordinary Account savings cover the purchase, the down payment, the housing loan, stamp and legal fees, and Home Protection Scheme premiums for HDB flats.
- Processing fees, late payment charges, default charges and early repayment charges can apply on top of the interest.
How a renovation loan is structured
A renovation loan has the features MoneySense sets out for a term loan: the amount is repaid by instalments over the loan period, the instalments are fixed, and the bank can recall the loan if the terms of the loan agreement are breached. It is unsecured, unlike a housing loan or a car loan, so nothing is pledged as collateral and the interest rate tends to be higher.
Why the advertised rate understates the cost
MoneySense notes that a flat rate is commonly used for personal term loans, with interest calculated on the original loan amount for the whole tenure even though the outstanding balance falls each month. That is why the Effective Interest Rate on a flat-rate loan is higher than its advertised rate. MoneySense points to the EIR, rather than the advertised rate, as the basis for comparing loan packages.
How it affects borrowing capacity
Renovation loans are on the list of debts MAS requires financial institutions to include when computing a borrower Total Debt Servicing Ratio, alongside property loans, car loans, student loans, credit card loans and other secured or unsecured borrowings. Total monthly debt repayments are tested against a TDSR threshold of 55% of gross monthly income, so an outstanding renovation loan reduces the amount available for a property loan.
Fees and charges to check
- Processing fee, usually charged upfront on loan approval
- Cancellation fee, where an approved loan is not drawn down
- Late payment and default charges
- Early repayment charge for settling part or all of the loan ahead of schedule
Key renovation loan figures
| Item | Figure |
|---|---|
| Loan type | unsecured term loan |
| Interest commonly quoted as | flat rate — EIR is higher |
| Counted in TDSR | yes, against the 55% threshold |
| CPF Ordinary Account savings usable for renovation | not a listed CPF housing use |
Figures as at 2026. Source: MoneySense.
Worked example
MoneySense shows how a flat rate works using a car loan: on SGD 90,000 at 2.5% p.a. flat over 5 years, the interest is SGD 11,250 — 2.5% of the full SGD 90,000 for each of the five years, even though the balance is falling. A renovation loan quoted on a flat rate behaves the same way, which is why its Effective Interest Rate sits above the advertised rate.
Related terms
All Singapore glossary terms →Related calculator
Estimate the monthly instalment and total interest on a renovation loan across different tenures.
This page is provided for educational and informational purposes only. It does not constitute financial advice. All figures and worked examples are estimates for illustrative purposes, are subject to change, and do not reflect any individual’s circumstances. Always refer to MoneySense, MAS and the CPF Board and seek independent professional advice before making any financial decisions.