Using Equity to Finance Home Repairs
A home equity loan allows you as a homeowner to get a loan by
using the equity in your home as your collateral. The equity
here consists of whatever funds you have invested in your
property in order to own it or improve it. Since it is a debt
against your own property, which you are in actual possession
of, a home equity loan is a secured debt. The property can be
required to be sold if you are unable to pay the money back that
you have borrowed.
Home-equity loans typically have fixed rates and give you five
to 15 years to repay. Home-equity lines of credit usually have
variable rates and a 10-year period during which you make only
interest payments, followed by a 10- or 15-year period during
which you must pay off the debt.
Why Should I Consider a Home Equity Loan to Pay for Repairs?
Repairs and maintenance are part of the routine costs of owning
a home. Such expenses ideally should be paid out of your current
income. Some years you’ll spend less, but other years you’ll
spend more, and it can be handy to have some cash saved up for
bigger repairs. If you don’t have the cash but need to make the
repairs to preserve the value or safety of your home, then a
home-equity loan or line of credit can be a good alternative.
The interest rates on home-equity borrowing tend to be low, and
your interest payments may be tax-deductible.
When you’re using home equity for repairs, though, you should
try to pay off the loan as quickly as possible. Unlike home
improvements, repairs don’t add much value to your home, so it
doesn’t make sense to stretch out the repayment.
Tax benefits of home equity loans
A home equity loan is also beneficial because the home equity
loan rate charged is usually tax deductible, as the loan is used
for its primary functions. You can check on various home equity
interest rates with a home equity loan calculator and decide
what the best rate is for you. This is not the case with other
forms of consumer credit, like credit cards and auto loans.
Do Your Homework
Contact several lenders–and be very careful about dealing with
a lender who just appears at your door, calls you, or sends you
mail. Ask friends and family for recommendations of lenders.
Talk with banks, savings and loans, credit unions, and other
lenders. If you choose to use a mortgage broker, remember they
arrange loans but most do not lend directly. Compare their
offers with those of other direct lenders.
Be wary of home repair contractors that offer to arrange
financing. You should still talk with other lenders to make sure
you get the best deal. You may want to have the loan proceeds
sent directly to you, not the contractor.
Comparing loan plans can help you get a better deal. Whether you
begin your shopping by reading ads in your local newspapers,
searching on the Internet, or looking in the phone book, ask
lenders to explain the best loan plans they have for you. Beware
of loan terms and conditions that may mean higher costs for you.
Negotiate with more than one lender; don’t be afraid to make
lenders and brokers compete for your business by letting them
know you are shopping for the best deal. Ask each lender to
lower the points, fees, or interest rate. And ask each to
meet–or beat–the terms of the other lenders.
You may freely reprint this article provided the following
author’s biography (including the live URL link) remains intact:
About the author:
John Mussi is the founder of Direct Online Loans who help
homeowners find the best available loans via the www.directonlineloans.