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Best way to pay for home repair?

Posted by Dedtired (My Page) on
Thu, Jun 26, 03 at 13:11

Hi

I just got an estimate of $12,500 to have the bricks on my house re-pointed. I can pay for this out of money I have in a Short Term Corporate Bond Fund (Vanguard) or I can get a home equity loan. My house is entirely paid off and I have never borrowed against it.

Since borrowing against the house would have some tax advantages and I presume the rate of interest would be low, how do I go about figuring which is the best way to pay for this much needed repair?

Thanks.

Pam


Follow-Up Postings:

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RE: Best way to pay for home repair?

Hi Pam,
I recommend calling around a few of your neighborhood banks and asking for a Home Equity Line Of Credit (HELOC.)

You ought to be able to get a low LTV HELOC at or near Prime (4% as of yesterday) with almost no transaction costs.

Very simple deal... just pick up the phone ;~)

Dave Donhoff
Just some mortgage guy ;~)


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RE: Best way to pay for home repair?

Thanks Dave. Believe it or not, other than the mortgage for my home, I've never gotten a loan! I just pay as I go or live without it.

So, I'll give this a try. I just can't decide which will be less expensive, bottom line, the loan or using the money from the bond fund.

Thanks.


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RE: Best way to pay for home repair?

well, get some rates. That'll help.

And figure out how long it'll take to pay it back.

using the money from the bond fund is actually borrowing from yourself, you'll pay in interest whatever the fund it earning (bcs you won't be able to earn that interest)

If you didn't plan to pay back the bond fund, I'd say don't dip into it. If you will pay back the bond fund, then some simple algebra ought to tell you. (basically, go with whichever has the lower rate--a Heloc charging 5% is a better route than giving up 7% earnings on the bond fund)

And here's why I wonder if a HELOC would be better: you don't have much of a credit history (any credit cards? if not, you don't have much of a credit history).

Taking out a loan and paying it back promptly does wonders for a credit rating.

And perhaps you think you don't need a good credit rating, because you pay as you go, but just think: One day you may need to repoint the bricks on your home, and a good credit rating may mean you can get a much lower HELOC rate!


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RE: Best way to pay for home repair?

Hey, Talley. Thanks. That's what I needed to hear. I have a very good credit rating, having paid for my entire kitchen renovation via credit card, which I paid off promptly. I also repaid student loans. I'm not concerned about that.

Thanks for your advice!

Pam


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RE: Best way to pay for home repair?

Hi Dedtired Pam,

Were I to have suggested that you flush $50. down the toilet, you'd have looked at me as though I had two heads.

As we don't know when you did your kitchen renovation, we don't know what rate of interest you might have been able to obtain on a Home Equity Line of Credit (HELOC) when you did that - probably somewhere in the area of 5 - 8%, likely not above 10%.

Most regular credit cards charge something like 15 - 18%. Store-issued cards around here usually run 25 - 28%.

You'd probably have been much better off to have used the HELOC then - if you'd known.

Over the years that I've been a personal financial advisor I've become distressed that so many know so little about how to manage money effectively.

And it costs them, as it likely cost you.

Learning how money works is an interesting hobby - that pays well.

Good wishes for a great summer,

ole Ed


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RE: Best way to pay for home repair?

Just an FYI -- I paid cash for my kitchen. I charged many items, but paid off the full amount so I never paid any interest. Generally, I believe in paying as you go. If I have to borrow, I just do without. Paid cash for my used car, too.

However, there are times when I must borrow, such as student loans.

With all the expenses I have had getting my house in shape, the cost of brick pointing will have to come from my savings or from a home equity loan. It's difficult to figure which is the more cost effective way to do this because of the tax advantages of a home equity loan.

However, I am sure that I have flushed away $50 more than once in my life!

Pam


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RE: Best way to pay for home repair?

remember also that in that bond fund, you'll ALSO lose the interest on the interest, which will be higher or lower depending on how long it takes to pay it off.

My vote is for the HELOC, simply because I don't like to dip into retirement. It's more a mindset choice than a hard-cash-value


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RE: Best way to pay for home repair?

Hi Dedtired,

I'm pleased that the "putting it on the credit card" was only a very temporary action.

Just goes to show how we jump to unwarranted conclusions, at times, doesn't it?

Often learning more of the facts enables better communication.

All of us have goofed over a $50. deal (even more), long before having achieved my advanced years.

Do you know folks who've had brick repointing done and are pleased (or less so) with the contractor?

If you'd listed names, phone and email of everyone you know - it would be easy to send out a general email inquiring about such experiences.

There used to be a "Home Service Club" in Toronto that helped members find capable service providers, e.g. plumbers (often young ones just starting in business) willing to come to one's home at 2 a.m. to deal with burst pipe, etc. - sometimes even at minimal surcharge for off-hour service. Used to get some discount on heating oil, etc. also.

Good wishes for getting a quality job done at a fairly reasonable price, with a congenial contractor. I believe that there are some such still around.

joyful guy


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RE: Best way to pay for home repair?

Thanks for your encouragement, joyful. In our neighborhood, we are just putting together a listserve for recommending contractors, plumbers, etc, as well as to discuss neighborhood issues. I think it will be a terrific resource.

Thanks, Talley. Hadn't thought about the compounding issue.

Now -- to find a good brick mason at a fair price!

Pam


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RE: Best way to pay for home repair?

oh, and of course you'll need to factor in fees--penalties w/ the bond fund? (prob. not) points w/ the HELOC?


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