Personal Finance Advice

What happens when something in your house breaks? If you rent your house then you probably call the landlord to request a repair.  Maybe you own your home but have a service warranty that covers repairs, so you call them.  What about when something breaks that needs repair quickly and isn’t covered by any warranty?

Homeowners have a few different options when it comes to paying for repairs.  Keep in mind this is an entirely different category from improvements that you want to do.  It’s one thing to want to change the color scheme in your house, but it’s another thing entirely to have a water heater stop working or the foundation of the home crack.  These are things that can’t wait.

How should you pay for repairs? Homeowners have a few choices:

Cash:  Some repairs aren’t too terribly expensive.  Buying a new screen for a window or repairing a leaky faucet doesn’t cost a great deal of money so most homeowners are able to pay for expenses like these out of their own pocket without much trouble.  Should you dip into your savings account to pay for home repairs? That’s what an emergency fund is for - to pay for necessary expenses - but you shouldn’t drain your entire savings to do a repair unless you have no other choice. 

Credit:  Avoid using credit cards to pay for home repairs unless you don’t have any other option.  It’s best if you can pay off the balance quickly in order to avoid expensive interest charges.  On the other hand, a perk to using a credit card to pay for a home repair is that you can dispute the charge if the work is not done properly.  Interest on credit cards isn’t usually tax deductible, though, so only use this option if you don’t have any other choice available to you.

Equity Loan:  An equity loan or equity line of credit allows you to use the equity in your home in order to get your hands on some cash for whatever you need.  Using an equity loan for home repairs makes a lot of sense since the interest you pay can be tax deductible and the long amortization makes for small monthly payments.  This doesn’t make it the very best option, however, because any time you tap into your equity you’re putting your house on the line.

Refinance:  A cash-out refinance on your mortgage allows you to get a new loan - ideally at a much lower interest rate - and receive cash back for the home repairs.  This can be a good option for someone who needs to make a major repair but does not have the savings to pay for it, but on the other hand refinancing can be costly because of closing costs.  If you can get a much lower interest rate it can be worth it because of the money you can save in the long run.

Don’t skip on repairs.  Houses have a tendency to fall apart relatively quickly if things are allowed to crumble and remain in disrepair.  Use whatever means you have to make necessary repairs and put off making decorative changes until you can pay for them in cash.