Thinking of financing a home repair? You might want to rethink this

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In today’s borrowing environment, paying upfront might be your best bet.


Key points

  • Home repairs can pop up out of nowhere, and sometimes financing them is the only option.
  • With the Federal Reserve raising interest rates these days, you might want to pay for repairs with your savings instead.

Anyone who owns a home knows full well that the costs involved go beyond simply paying a mortgage. And if there’s one expense that tends to surprise homeowners, it’s repairs.

Some home repairs are predictable. For example, if you have an air conditioning system that progressively cools your home, there is reason to believe that a repair might be needed.

But your air conditioning system could also stop working overnight. And at that point, you may be in a position where you need to fix it immediately.

Now, in these situations, the ideal is to dip into your emergency fund. But what if you’re nervous about making a withdrawal and prefer to leave your savings alone? If this is your opinion, you might be inclined to finance your home repairs. But for now, that could end up being a big mistake.

Why financing a home repair is a risky move

The Federal Reserve decided to raise interest rates in an effort to slow the pace of inflation. As such, borrowing has gotten more expensive, and it may continue to get more expensive as the year goes on.

This is why, at present, the financing of a home repair or the financing anything, by the way, is a decision you might regret. If you charge a home repair to a credit card, the interest you pay on it could be substantial, especially in light of rising rates.

Even if the company performing your repair offers direct financing (i.e. you don’t charge the expense to a credit card, but finance it through the repair company -even), it is likely to cost more than usual due to lower borrowing rates. So if you have money in your savings account to cover a repair, now is the time to use it.

Remember that the purpose of having an emergency fund is to pay for expenses that you cannot foresee. And home repairs usually fall into this bucket.

Now, for some people, the thought of withdrawing a large emergency fund is unnerving, so it’s understandable that you wouldn’t feel right doing it. But given today’s borrowing environment, it makes sense to avoid finance charges.

Be sure to budget for home repairs

In some cases, it may be difficult, if not impossible, to budget fully for home repairs. Let’s say your air conditioning system needs a $1,000 repair. This is an amount that your paycheck may not be able to cover. Plus it’s probably unrealistic to budget $1,000 for home repairs all month.

But let’s say you can budget $250 a month for home repairs (or some other figure that works for you). Then, each month that you don’t need that money for repairs, you can leave those funds in your checking account rather than spending them. This way, if a more expensive repair occurs, the money will already be there.

Another option in this scenario is to take that $250 and put it into savings so your emergency fund gets a boost. And it could make withdrawal a lot less painful if you’re forced to take one.

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