Fund Home Improvements

We all occasionally need a quick cash injection. Often we need it to fund home improvements and repairs. In this article we’ll take a look at a way to free up much-needed cash to pay for this kind of work.

Here’s the situation. You’ve lived in your home for about 25 years now. You have about $30,000 left to pay on the mortgage, and then you’ll be debt free. Unfortunately, you wake up one wintry morn to find that last night’s storm tore the slates clean off your roof, leaving a nice big leaky hole above the attic. The rain got in, soaked your loft insulation and is as we speak forming an enormous water stain on your bedroom ceiling.

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So what do you do? You don’t have the cash to pay for the repairs, and your home insurance doesn’t cover storm damage. Well, the easy option would be to take out a home equity loan. What’s that, I hear you ask? Well, let me tell you.

Let’s say your house has a market value of $250,000. As I said, you’re coming up to the end of your mortgage, so you only have $30,000 left to pay. What that means is that you have $220,000 worth of equity sitting in your house. Essentially, you own $220,000 of the home, while the bank still owns the rest. You can now borrow money to fund home improvements and repairs using the equity on your home as collateral to secure the loan.

While it may seem tempting to borrow the maximum the bank will lend you, and that can be anything up to (and occasionally beyond) 100% of the equity of your home - it’s really best just to borrow what you need to fund the necessary home improvements. Fix the roof, and by all means add a nice conservatory onto the back of the house for those warm summer days. Just don’t get carried away. You don’t really need that new poolhouse, do you?