Using Equity to Finance Home Repairs

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					by: John Mussi

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

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.

Comparison Shop
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.

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This article was posted on January 23, 2006

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