There is a reason why it is wise to spend three to six months on your life overnight. savings account… You never know when a financial emergency might hit, and if you have enough money in the bank, you won’t have to accumulate costly debt to cover an unplanned bill.
It is especially important for homeowners to have a solid emergency fundbecause when you own a property, there is always the possibility that something dear will break. And even seemingly minor household problems can cost several hundred dollars that your regular salary might not cover.
If you are looking for a home renovation and have a contingency fund, you may be considering a withdrawal. After all, this is what extraordinary savings are for. But before you spend your savings on home renovations, consider the alternatives available.
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Can you finance home renovations at an affordable cost?
Renovating a home with a 20% interest credit card doesn’t make much sense if you have enough savings to cover your expenses. But if you borrow on your home, you can pay much less interest on the amount you borrowed. And it allows you to keep your savings in case of an emergency next time.
When it comes to a secured home loan, you have options. Could you take mortgage loanby taking a lump sum, you pay in equal installments over time. With a home equity loan, you can claim an interest rate of around 6% on the amount you borrow based on today’s rates, which is much lower than what a credit card might charge.
Likewise, you can get hold of HELOC (home equity line of credit) and get access to a line of credit from which you can draw when needed. HELOC rates can be lower than home loan rates and you can pay less than 4% for HELOC right now. But be careful, because HELOC rates can be variable – you can start with a competitive rate that will eventually go up.
Finally, you can look at cashing refinancing… When you regularly refinance your mortgage, you take out a new home loan to cover your existing mortgage balance. When you refinance with a cash payment, you borrow more than your existing mortgage balance and use the remaining money for any purpose – in this case, to renovate your home. Given today’s refinancing rates, you can pay at 3% per annum depending on the term of the loan, and this is an affordable way to finance home renovations while preserving your savings in case of unforeseen circumstances.
The emergency fund is intended to cover unforeseen expenses. But if you’re planning a major home renovation – one that could nearly wipe out your savings – you might want to look into affordable loan options before emptying your bank account. This way, you don’t have to fight the next time you face a financial crisis.