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Remodeling and That Savings Dip

By: Allison Millar, Contributing Writer
In: In the news, Necessary home improvements
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A savings account can be a great buffer against economic changes, but when is it OK to use it? Does an upcoming bathroom remodeling project qualify as a “dip into the savings event?” In many cases, it’s OK to use savings. Just make sure you keep a buffer and look at the whole picture.

Tapping Into Savings for the New Tub

While it might seem silly to use your savings account for a new bathtub, it can be a responsible choice. Add up all your liquid savings (not retirement accounts). Is there enough to cover the bathroom remodeling and still leave an emergency fund?

The National Assoc. of Home Builders suggests looking at your whole financial picture, including investment goals and your income. By using money from a savings account, you’re potentially missing a chance to invest it somewhere else. Consider those rates to see which route is best.

One key advantage to using savings is that you won’t have the burden of more debt. That $10,000 project is a $10,000 project because you don’t have to add interest.

Home Equity Financing: Yeah or Nay?

Home equity financing is another option, but lenders are more cautious today. In previous years, homeowners would refinance and use home equity for their remodeling. According to the Washington Post, refinancing is much harder to find today.

You may have room on an existing home equity credit line, however. Try online home equity calculators, like these from Chase, to see how you’d fare. One bonus is that the interest from home equity financing typically is tax deductable.

Savings or home equity financing? It’s not always an easy choice. Weigh your cash position against how much the remodeling might cost. Can you cover it with just savings, leaving a little for that rainy day? If not, perhaps a little home equity can help.

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