Should You Use Home Equity to Finance Repairs or Wait and Save up the Money?

If your home needs repairs and you don’t have enough money in your bank account, it can be tempting to use your home equity. Doing so might be your best option in some cases, but it can be risky.

When and How to Tap Into Home Equity for Repairs
The decision on how to finance home repairs will depend on whether they are urgent. A leaky roof needs to be fixed now, before it gets worse and you wind up with major damage, both inside and outside the house. Any issue that could put your family at risk or make your home uninhabitable, such as a broken furnace in the middle of winter, needs to be addressed immediately. In that case, you might have no choice but to access your home equity.

With a home equity loan, you can receive money in a lump sum and repay it at a fixed interest rate. Home equity loans typically have higher interest rates than first or second mortgages. You’ll have to make monthly payments until the amount borrowed has been repaid.

With a home equity line of credit (HELOC), you can draw money as you need it, similar to the way a credit card works. Your monthly payments will be based on the amount of money you’ve used. HELOCs have adjustable rates, which means your payments may rise and fall.

When to Wait and Save
Optional projects, such as remodeling a bathroom or upgrading kitchen appliances, can wait until you’ve saved up enough cash. Saving the money ahead of time can help you avoid having to repay a home equity loan or HELOC with interest. In the meantime, you can look for other ways to make your home more comfortable, such as making smaller changes or tackling just one piece of a larger project.

Is Using Home Equity a Good Option for Home Repairs?
Some home repairs can’t wait. In such a situation, you might have to access your home equity through a loan or line of credit. Before you choose either, make sure you understand how it works and the risks involved. If you take out a home equity loan or HELOC and don’t make the payments on time, you can lose your home.

You shouldn’t get in the habit of borrowing against your home equity, but rather should focus on saving and prioritizing and use home equity only when absolutely necessary. If you can wait to make repairs, saving the money first is a safer move.

This article is intended for informational purposes only and should not be construed as professional or legal advice.