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What's the Best Way to Pay for Emergency Home Repairs?

Dec 11, 2019 by Maurie Backman
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When you own a home, you don't just sign up to pay your mortgage on a monthly basis and cover your property tax bill. You're also required to keep your home standing, and often, that means coming up with the money to pay for emergency repairs.

Those repairs, unfortunately, are not uncommon. HomeServe reports that in roughly the past year, 58% of homeowners encountered an emergency repair. Paying for them, however, can be challenging, so here's what you need to know about coming up with home repair money in a pinch.

Your best bet for tackling home repairs

If you have an emergency fund -- money in a savings account to cover unforeseen expenses -- then tapping it is generally your best bet to pay for sudden home repairs. First of all, that's what that money is there for. Secondly, when you take a withdrawal from savings, you're not borrowing money, which means you don't have to worry about racking up interest on the amount you use to pay for the repair in question.

Your second-best option when an emergency repair strikes

If raiding your emergency fund isn't an option -- say, you don't actually have one, or you're worried that if you deplete that account to cover a home repair, you'll be stuck when a different unavoidable expense arises -- your next best bet is to borrow against your home. This option is generally on the table provided you have at least 20% equity in your home.

How do you know how much equity you have? It's simple: Just take the current value of your home (which you can access on sites like Zillow, or by looking at your most recent property assessment from your local municipal government), and subtract your outstanding mortgage balance. The difference represents your equity. If your home is worth $300,000, and you owe $240,000 on your mortgage, you have $60,000 worth of equity, or 20%.

Assuming that equity is there, you have two choices for accessing cash for an emergency home repair: a home equity loan, or a home equity line of credit (HELOC).

With a home equity loan, you borrow a certain sum and repay it, at a preset interest rate, over time. With a HELOC, you get access to a certain amount of money you're allowed to borrow. You can borrow all of it, or just borrow some, and you only pay interest on the amount you borrow.

Is one option better than the other? It depends. If you have an exact estimate for what your repair will cost you, a home equity loan could be your better bet, since you can lock in your interest rate on it. HELOCs often have variable interest rates, which means yours can climb over time. That said, if you pay off your HELOC quickly, that may not be a concern, and a HELOC could grant you more flexibility. For example, if you're looking at a $6,000 repair, a home equity loan worth $6,000 won't give you extra money to work with. An $8,000 HELOC, on the other hand, lets you cover that repair while opening the door to borrowing another $2,000 as needed.

Make credit cards your last resort

If you don't have an emergency fund and you don't have the option to borrow against your home to cover a repair, a personal loan could be the next option to pursue. To qualify, you'll need good credit, and you'll generally pay more interest on a personal loan than on a home equity loan or HELOC. But you'll generally pay much less interest than you would on a credit card, which leads to our final point:

Your credit card should be your last resort for covering an out-of-the-blue home repair. That's because credit cards tend to charge exorbitant interest rates, and that's hardly good for your finances. Having too much credit card debt can also bring down your credit score, so only whip out a credit card if you're truly out of options.

Keep up with home maintenance

Though some emergency home repairs are truly unavoidable, you can lower your chances of an issue popping up suddenly by staying current on your home maintenance. For example, if you get your heating system inspected and serviced annually, you might spend $120 to avoid a $3,000 issue months later. And that's why it pays to be vigilant -- it could save you a world of money, stress, and aggravation on the home repair front.

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