Planning to Finance a Home Repair? You May Want to Rethink That

An air conditioner repairman uses a clipboard to explain the cost of repairs to the homeowners.

Image source: Getty Images

Anyone who owns a home knows full well that the costs involved extend beyond just paying a mortgage. And if there's one expense that tends to catch homeowners off guard, it's repairs.

Some home repairs are predictable. For example, if you have an air conditioning system that's gradually doing a worse job of cooling your home, there's reason to believe a repair might be in order.

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

Now in these situations, the ideal thing to do is to tap your emergency fund. But what if you're nervous to take a withdrawal and would rather leave your savings alone? If that's your thinking, you may be inclined to finance your home repair. But right now, that could end up being a big mistake.

Why financing a home repair is a risky move

The Federal Reserve has been moving forward with interest rate hikes in an effort to slow the pace of inflation. As such, borrowing has gotten more expensive, and it may continue to get costlier as the year moves along.

That's why right now, financing a home repair, or financing anything, for that matter, is a move you might regret. If you charge a home repair on a credit card, the interest you pay on it could be substantial, especially in light of rising rates.

Even if the company that does your repair offers direct financing (meaning, you don't charge the expense on a credit card, but finance it through the repair company itself), chances are this will be more expensive than usual due to an uptick in borrowing rates. So if you have the money in your savings account to cover a repair, now's the time to use it.

Remember, the purpose of having an emergency fund is to pay for expenses you can't anticipate. And home repairs generally fall into that bucket.

Now for some people, the idea of taking a large emergency fund withdrawal is unsettling, so it's understandable that you may not feel good about doing so. But given today's borrowing environment, avoiding financing charges makes sense.

Make sure to budget for home repairs

In some cases, it can be tough, if not impossible, to budget completely for home repairs. Let's say your air conditioning system needs a $1,000 repair. That's a sum your paycheck may not be able to cover. And besides, it's probably unrealistic to budget $1,000 for home repairs every month.

But say you can budget $250 a month for home repairs (or another number that works for you). Then, any month when you don't need that money for repairs, you can leave those funds in your checking account rather than spend it. That way, if a costlier repair comes up down the line, 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 that could make a withdrawal a lot less painful if you're forced to take one.

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