Planning a renovation budget: how much to save, how much to borrow

A new kitchen, a leaking roof that can't wait, or getting a first home ready to move into. Renovations are exciting, but they have a habit of growing. A cabinet upgrade here, a hidden plumbing problem there, and the final bill ends up well above the first quotation. Planning the budget properly before work starts, and deciding in advance how much to pay from savings and how much to borrow, makes the whole project calmer. This guide walks through the steps with worked examples, from the first quotation to the last payment.

Step 1: build the budget from quotations, not guesses

Renovation costs depend heavily on the size of your home, the materials you choose, the condition of what is already there and the contractor you use. Rather than relying on prices you have heard from others, base your budget on written quotations for your home.

• Get at least two or three quotations for the main works, each with a breakdown by item
• Check what is and isn't included: removal of old fittings, debris disposal, electrical and plumbing points, painting, cleaning
• Compare like with like. If one quote uses a different tile grade or leaves out the plumbing, adjust before comparing totals
• Ask about the timeline, because a longer job can mean extra costs such as rent elsewhere

What to put in the budget

Write everything into one list, grouped like this, with the total at the bottom:

That total is your starting budget, not your final one. The "loose items" line is where budgets most often grow without anyone noticing, so give it a firm figure.

Step 2: add a contingency buffer

Once walls are opened up, surprises are common: wiring that needs replacing, uneven floors, water damage behind tiles. A contingency buffer is money set aside for exactly these situations. How much to set aside depends on your project. An older home or a job involving plumbing and electrical work deserves a larger buffer than a repaint. In our example below, we use 10%, but treat that as a planning choice rather than a rule.

Decide in advance what the buffer is for: genuine surprises, not upgrades you decide on halfway through. If the buffer isn't used, that's good news. Step 7 shows what to do with it.

Step 3: split savings and loan

Before deciding how much to borrow, decide how much of your savings you can safely use.

1. Protect your emergency fund first. Keep several months of essential living expenses aside and don't count it as renovation money.
2. Use the savings above that towards the renovation.
3. Borrow the gap, and only the gap.

Paying part of the cost from savings reduces the loan amount, the monthly instalment and the total interest. But emptying your savings to avoid a loan can leave you exposed if something goes wrong at home or at work.

A worked example

Suppose your quotations add up to RM 35,000 and you add a 10% contingency of RM 3,500, for a total budget of RM 38,500. After keeping your emergency fund intact, you have RM 8,500 of savings to put in. That leaves RM 30,000 to borrow.

These figures are an illustration of the method, not typical renovation prices. Your own quotations will be different.

Step 4: compare your funding options

A personal loan is one way to fund the gap, not the only one. Each option suits a different situation:

If you are renovating an older property and the amount is large, ask your home loan bank about a top-up as well. For a mid-sized project, an unsecured loan avoids putting your home up as security and is usually simpler. Our renovation loans page explains how our personal loan fits this use.

Step 5: choose a term

Our personal loan rate is 4.9% a year for every term from 3 to 108 months, so a longer term costs more only because you owe the money for longer. Repayment is by equal monthly instalments on a reducing balance. Here is RM 30,000 over 12, 24, 36 and 60 months:

The 36-month term lowers the instalment by about RM 417.02 a month compared with 24 months, but costs about RM 764.95 more in interest in total. Which is right for you depends on your monthly budget:

• If RM 1,315 a month fits comfortably alongside your other commitments, the 24-month term saves the most of the two
• If it would squeeze your living costs or leave nothing to save, the 36-month term is the safer choice, and you can still settle early later
• Longer terms, up to 108 months, cut the instalment further but cost much more: over 60 months the instalment is about RM 564.76, but interest is about RM 3,885.84, about two-thirds more than the 36-month figure
• The 12-month term is cheapest of all, but at about RM 2,566.85 a month it only suits people with high income or a bonus coming

Use our affordability calculator to check how each instalment fits your income and existing commitments.

What if you put in more savings?

If you could use another RM 5,000 of savings and borrow RM 25,000 instead:

Compared with borrowing RM 30,000, that saves about RM 259.21 in interest over 24 months, or about RM 386.71 over 36 months. It's worth doing only if your emergency fund stays intact.

What if you do it in phases?

Suppose the RM 35,000 of quotations includes a RM 10,000 kitchen that could wait a year. If you do the essential works now, keep the same RM 3,500 buffer and the same RM 8,500 of savings, the budget falls to RM 28,500 and you borrow RM 20,000 instead of RM 30,000:

You would then save towards the kitchen over the following year. Phasing works best when the later work doesn't mean undoing anything you've just finished, so check this with your contractor.

Step 6: check and pay contractors in stages

How you choose and pay the contractor matters as much as how you fund the project.

Before you sign

• Check the business. Ask for the company's SSM registration and its CIDB (Construction Industry Development Board) registration. Under the CIDB Act 1994, every contractor carrying out construction works must be registered with CIDB, whatever the size of the job, and the contractor's grade limits how big a job it can take on. Check that the grade covers your job and keep a copy of the registration certificate.
• Ask for recent work you can see or speak to previous customers.
• Check approvals. Apartments and condominiums usually need building management approval for renovations, and structural changes or extensions may need local council approval. Ask the contractor who will handle this.
• Put everything in writing: scope of work, materials and brands, timeline, payment schedule, and what happens if the work is late or defective.

Paying in stages

• Avoid paying the full amount upfront. Agree a payment schedule linked to completed stages: for example, a deposit, then payments after key works such as wiring and tiling are finished, with a final payment after inspection.
• Keep a retention for the final stage until snags are fixed, if your contractor agrees.
• Pay to the company's account, keep receipts, and be cautious about large cash payments.
• Agree variations in writing. If you add work halfway, get a written price before it starts, so it doesn't eat the contingency without you noticing.

If you borrow, the loan amount is paid out to you in one go, so plan where that money sits until each stage is due. Keeping it in a separate account makes it easier to see that it is only used for the renovation.

Step 7: use any unspent buffer well

A longer term keeps the instalment safe, and you can still pay early when a bonus or other income arrives. With us there is no early-settlement penalty, and because each month's interest is worked out on the balance you still owe, anything you pay early cuts the interest still to come.

If the contingency isn't needed: suppose the work finishes after three instalments of the RM 30,000, 36-month loan, and RM 3,500 of the buffer is left. Paying it towards the loan as a partial prepayment right after the third instalment reduces the balance, and the remaining 33 instalments are recalculated: the instalment falls from about RM 897.78 to about RM 784.20, the end date stays the same, and you save about RM 248 in interest. The minimum partial prepayment is RM 1,000, so RM 3,500 qualifies. If you pay between due dates instead, interest on the RM 3,500 for the days since your last due date (annual rate ÷ 360 per day) is added that day: about RM 0.48 for each day.

If you can settle in full later: using the same 36-month example, after 12 instalments the remaining balance is about RM 20,484.83. Settling it in full at that point, instead of paying the remaining 24 instalments of about RM 21,546.76, would save about RM 1,061.93 in interest.

Try your own numbers with the early settlement calculator, and read Is early settlement worth it? for more.

Common renovation budget mistakes

• Budgeting from the cheapest quote without checking what it leaves out.
• No contingency, so the first surprise goes onto a credit card.
• Letting upgrades eat the buffer. The contingency is for surprises, not a nicer worktop.
• Paying most of the cost upfront to a contractor you haven't worked with before.
• Forgetting furniture and appliances, which often add a large amount at the end.
• Choosing the longest term by default when a shorter one fits your budget.
• Using the emergency fund as renovation money.

When not to borrow for a renovation

A loan makes sense for work that needs doing now: a leaking roof, unsafe wiring, a home you need to move into. It makes less sense for upgrades that could wait while you save, especially if your debt service ratio is already high. If the instalment would leave you with nothing to save each month, consider phasing the work or waiting.

Your renovation budget checklist

1. Written quotations from two or three contractors, itemised and compared like for like
2. A list of extras: furniture, appliances, approvals, temporary housing
3. A contingency buffer suited to your project, kept for real surprises
4. Emergency fund protected before using savings
5. Funding options compared: savings, personal loan, home loan top-up, phasing
6. Loan amount = budget minus usable savings
7. Instalment checked against your monthly budget
8. Contractor checked, and the scope and staged payment schedule agreed in writing
9. A plan for any unused contingency, such as a partial prepayment

Summary

A good renovation budget starts with real quotations for your home, adds a contingency buffer, and uses savings only above your emergency fund. Borrow just the gap, compare it with other ways to fund the work, then choose the shortest term you can comfortably afford. In our example, RM 30,000 over 24 months costs about RM 1,555 in interest, while 36 months costs about RM 2,320 but with a much lower instalment. Phasing the work or putting in more savings lowers both, and paying back an unspent RM 3,500 buffer saves about RM 248. Find out more about renovation loans, apply online in about three minutes, or call 011-2102 9366. Every application is assessed by our licensed lending partner.

This article is general information only and is not personal financial advice. Approval and loan amounts are subject to assessment and your loan agreement. How we write and check our guides