Running out of funds while your home renovation is still in progress is an embittering experience. However, it is a reality that bothers many Singaporeans. Whether you have taken a renovation loan or not, running out of your reserves before the completion of your project can lead to a number of problems.
Leaving your home renovation unfinished can affect you in the following ways:
- Affects the aesthetic appeal and look of your home
- Can make your home less liveable
- Can affect the resale value of your home
- Can affect the rental value of your home
Common Issues Leading to Budget Overrun
Some of the common issues that can lead to cost escalation and budget overrun are as follows:
- Heavy structural changes
- Deviations from the original plan
- Poor workmanship
- Encountering unexpected design-related problems
- Failure to properly forecast total cost of renovation
Smart Solutions for Your Problem
The most important thing that you need to keep in mind is that the liveability and safety of the residents of your home shouldn’t be compromised even if you can’t fully complete the project. The following ideas will help you deal with this problem smartly:
Know what to finish first
Getting stuck with an unfinished renovation project could be frustrating, especially if it is due to lack of funds. However, through proper planning and by setting priorities, you can still add value to your home. If it’s a major renovation or improvement project, you’ll have to break it down into parts and prioritise them in terms of importance. A bathroom or electricity project can’t be left unfinished, it’s purely functional in nature.
However, a painting project or cosmetic upgrades can be put on hold temporarily till arrangement for extra funds can be made. If you were planning to add new fixtures or mood lights to the living room or replace your old lights, you can put it on hold. Your master bedroom should ideally be fully completed, since this is where you spend most of the time.
However, your living room, which requires detailing to work and naturally more investments, can be kept for later. Prioritise structural reinforcements over simple facelifts.
Scout for additional funds
This seems to be an obvious step. However, arranging for additional funds at a short notice may not be easy. You can explore the following options:
- Use your emergency fund: If you have been maintaining a separate emergency fund for all sorts of emergencies, this may be a good time to use it. Using your own funds will save you interest payments.
- Ask for help: If your friends or family can help you arrange the additional funds immediately, you can finish renovating your home or at least the important parts of it. This will give you time to arrange for money to pay back the dues without having to worry about interest payment.
- Take a home renovation loan: If you haven’t taken a renovation loan and you were paying for renovation out of your own pocket, you may apply for a renovation loan. You can borrow up to S$50,000 in renovation loans in Singapore and is often considered the smartest way to finish a renovation project on time. However, if you have already taken a renovation loan and have run out of money, you may have to look for alternatives. Try to broker a deal with the lender. Sometimes, if you can find a guarantor, the lender may agree to offer you a line of credit with higher limits. Of course, your current financial standing and ability to repay will be evaluated.
- Take a personal loan: A low-interest personal loan is another option that you can explore for additional funds. Usually, an EIR of 8-10% p.a. will be applied on your loan. A balance transfer is another smart choice.
- Use your credit card to take a loan: Although taking a loan with your credit card isn’t an ideal choice because you may have to pay interests at the rate of 24-28% p.a., it may be the only option left to you if you have exhausted all other options and are still falling short by a few hundred or thousand dollars.
- Use a secured overdraft: If you have a valuable asset that can be used as a collateral, you may make use of the secured overdraft facility to get a line of credit, where the credit limit is decided by the value of the pledged asset. It gives you extra cash without forcing you to liquidate your funds/assets. Most assets like FDs, structured funds, bonds and securities will have clauses under which heavy deductions will be made for premature withdrawal, leading to a real or notional loss.
If you were planning to rent out your flat and think that leaving it fully or partially unfurnished may affect the rental value of your home, your apprehensions may not be totally unfounded. On the bright side, you can still have a rental income if your tenant is okay with an unfurnished/semi-furnished property. You can deal with the aesthetic aspects of your project in a phased manner.
If you think that your contractor is overpricing services, it’s best to look elsewhere. The longer you take to finish a project, the higher are the chances of cost escalations.