How to pay for major home repairs

August 28, 2018
Major home repairs can be one of the most stressful events in your life when it comes to personal finances. These repairs can be expensive, and though they could increase the value of your house, you will not know how much they will improve your home equity until it is time to sell.
How to pay for major home repairs

Some home improvement projects fall into the “do-it-yourself” category. Most people can paint walls, install tiles, and do basic landscaping. If you are especially handy, you may even be able to connect new appliances.

Doing it yourself can help you save on costs, but it is not always an option. What if you need new windows, a new roof, or you need to connect a new gas line. Even if you are skilled with tools, these jobs are too big, complicated, and dangerous to do yourself.

So how do you pay for these home improvement projects?

There are four options. You could use a credit card, get an online personal loan, get a personal bank loan, or apply for a home improvement loan. Home improvement loans are usually rolled together with your mortgage so that you only have to make one payment.

If you are doing a do-it-yourself project or getting a minor repair or new appliance, you may be able to put the purchase and labor costs on a credit card. Credit cards, of course, may have high-interest rates, so you might be better off with a personal loan even if you have enough credit to put the repairs or improvements on a card.

What about personal loans?

A personal bank loan will, likewise, have a higher interest rate because it is not a secured loan. There is one drawback to personal bank loans: you may have to get more than your project budget. Many banks have minimum loan amounts, so you may have to get the minimum amount even if you need less.

Online personal loans are a good option for many home repairs because they do not have such minimums. Furthermore, your application does not depend on your credit score, but mainly on your current ability to repay. For any smaller repair or improvement project, an online personal loan could be the best option.

Secured loans

For more considerable home improvement efforts, a secured loan is the best option. You can use your home as collateral to get a loan with a little interest rate. This type of loan could also be given as a line of credit. With a line of credit, a homeowner can spend whatever they need to complete their project up to a certain limit. The advantage of this is that they do not have to borrow a set amount of money all at once. If the project is cheaper than expected, they do not have to borrow (and payback) the full amount.

The final option is to save money and undertake the project when you have enough cash to pay for it without taking out a loan at all. This strategy is good because it does not expose you to interest payments and the risk of default, but it is usually not practical unless you have a very high income.