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How to Pay for Emergency Home Repairs

Home repairs are an inevitable aspect of homeownership.

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Registered Investment Advisor
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Home repairs are an inevitable aspect of homeownership. Routine maintenance and minor repairs are easier to handle than major fixes. It never fails that a pressing emergency repair happens at a financially inconvenient time. Figuring out how to pay for a costly repair that cannot wait is a stressful situation. In the event of an unplanned fix, this is how to pay for emergency home repairs. 

HELOC Or Home Equity Loans

A home equity line of credit or HELOC is a revolving credit line based on the equity of the home. A lender will extend a line of credit based on the home’s value and the homeowner can access the funds as needed. HELOC loans are paid the same way as credit cards; as long as payments are made, the credit line is freed up. Since a HELOC loan is borrowing against home equity, spend the funds wisely and pay quickly to avoid risking the house. 

A home equity loan, like a HELOC, is based on the value of the home. With a home equity loan, homeowners receive a lump sum instead of an open-ended credit line and have a regular repayment schedule. The payment schedule usually has a fixed interest rate, however, homeowners have to borrow a set amount. This means that if there is another emergency repair, a new home equity loan needs to be taken out. 

Personal Loans

An alternative to securing a loan with the home is to open an unsecured personal loan. While there is no collateral with an unsecured personal loan, the creditor could sue for any unpaid balances or delinquent payments. Most personal loans come with fixed interest rates and terms based on the amount borrowed and creditworthiness. Like home equity loans, personal loans are lump sums, which means a new loan is needed for additional repairs. 

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0% APR Credit Cards 

A credit card with a 0% APR is an unsecured loan with the benefits of a revolving line of credit. With a 0% APR there is no interest accrued on purchases during a set period of time, which means repairs can be completed and paid off without interest. To avoid any interest, be disciplined with paying off the balance before the end of the introductory period. 

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Home Refinancing 

If putting a second lien on the house with a HELOC or home equity loan is too much risk, another option is to refinance the home for more than is owed and use the difference to pay for repairs. Lenders commonly refinance up to 85 percent of a home’s value. Refinancing will pay off the old mortgage and leave the homeowner with a new mortgage. If facing a time-sensitive emergency repair, refinancing may not be the best option since it can take several weeks to complete. 

Home Emergency Fund 

In an ideal situation, the best way to pay for emergency repairs is with a home emergency fund. Having savings on the side can prevent the need to take on debt to fund repairs. Instead of paying back a lender, the homeowner can create a plan to pay themselves back by re-funding the account when possible.