Home USA Should I incur debt to renovate my home? Rising interest rates pose...

Should I incur debt to renovate my home? Rising interest rates pose a dilemma for homeowners


You financed your home purchase with a loan, and now you’re considering borrowing more money to renovate it. Is this a wise decision?

A recent survey by Bankrate reveals that one in five homeowners has taken on additional debt to cover unforeseen maintenance and other hidden costs associated with homeownership. According to Greg McBride, Bankrate’s chief financial analyst, unexpected expenses are a certainty when you own a home.

These costs are on the rise. Bankrate reports that the average annual cost of owning and maintaining a home, including mortgage payments, has reached $18,000—an increase of 25% since 2020. This figure encompasses property taxes, insurance, repairs, utilities, and other essentials.

Maintenance expenses are also climbing. Thumbtack found an 8% increase in average annual maintenance costs last year, now totaling $6,663.

HomeAdvisor lists some major maintenance projects, such as roof replacement ($9,392), HVAC replacement ($7,000), foundation repair ($5,017), and whole-house termite treatment ($2,500).

Rodney Williams from SoLo Funds emphasizes the importance of maintaining your home, calling it a family’s most valuable asset and advocating for prioritizing its upkeep.

The high costs associated with home repairs underscore the need for emergency savings. Unfortunately, many households struggle to set aside enough funds to cover unexpected expenses, as highlighted in a Bankrate survey revealing that most Americans lack sufficient savings for a $1,000 emergency.

When faced with unexpected costs, many homeowners resort to borrowing. For instance, Jim Hall financed a $42,000 HVAC replacement through a combination of no-interest financing and a home equity loan.

Home equity loans and lines of credit are common tools for homeowners needing funds. Home equity loans offer fixed rates and lump-sum payments, while HELOCs provide variable rates akin to credit cards.

However, the current environment sees elevated interest rates, with home equity loan rates around 8.8% for a 10-year term and HELOC rates between 9% and 10%.

Despite these challenges, alternatives exist. Some homeowners opt for 0% APR financing from contractors or use 0% interest credit cards for short-term financing, although the latter may require a good credit score.

Postponing maintenance projects is discouraged due to potential worsening conditions and increased costs over time.

To prepare for unexpected home repairs, experts recommend saving annually based on a percentage of your home’s value, tracking the lifespan of major systems like HVAC and roofs, and reviewing insurance policies for coverage details.

In summary, while borrowing for home repairs is common, it’s crucial to weigh the costs and explore alternative financing options amidst rising maintenance expenses and interest rates.