Here’s the wet and wild truth. You’re 10 times more likely to have your house damaged by water than by fire. Fortunately, there’s a perfect home repair loan — the home equity line of credit (HELOC) — that will allow you to restore your water-damaged house well ahead of winter.
However the damage was caused — a leaky or burst pipe, an overflowing sink, a failing water heater, a clogged ice cube dispenser, a faulty washing machine hose, porous windows, an untreated wooden deck, or a hole in your roof — you need to take swift action by first identifying and managing the problem so it doesn’t cause further damage or destruction. Then second, you need to provide a long-term solution and permanent fix by either dipping into your emergency home repair fund or, barring that (you never had one), finding a financing alternative, such as a HELOC.
Manage the immediate problem
If you experience water damage, you can sort out later how you’re going to pay for it. Your immediate job is to stop the source of the water as best you can. If you don’t know the immediate source of the problem, turn off your home’s water main. That goes for your gas and electricity as well. However, if you know the offending source, like a stuck toilet handle, you can spare shutting off the utilities.
Common sense also tells you to try to minimize any residual damage. Think of this as a minor mop-up or holding operation. If you’re physically able, and it’s safe to proceed, lift drapes off the floor, remove wet area rugs, move valuable paintings, art objects and photos to a safe, dry place and hang furs and leather goods to dry separately at room temperature. Don’t try to remove wall-to-wall carpet. It will probably shrink after it dries out, and you’ll be left with an expensive throw rug.
While your insurance company will likely reimburse you for many of your damaged items, provided your accident was truly an accident and not caused by your failure to maintain your home in a safe and suitable state, you will probably be on the hook for repairing what caused the damage in the first place. In other words, if your house was flooded because you never adequately repaired your leaky roof and relied instead on a blue tarp to keep the rain or snow out, you alone will be responsible for paying to repair your roof.
HELOC to the rescue
If you understand how credit cards work, you already have a pretty good understanding how a HELOC works. With a credit card, your bank establishes a credit limit based on your household income and credit score. With a HELOC, your limit is based on how much equity you have in your home. If you have more than 20 percent equity in your home, you’re probably a good candidate for a HELOC.
Your lender will establish the term of your loan, called a draw period, over which you can make cash withdrawals up to your limit. This period is usually five to 10 years, during which you pay interest only on the money you use.
At the end of the draw period, you’ll begin paying back both principal and interest on your borrowed amount over another 10- to 20-year period.
More about HELOCs
To set up a HELOC, you will pay for closing costs and be charged a small yearly service fee, generally ranging between $15 to $75, to keep the loan available.
One feature that sets HELOCs apart from other loan products is that it is typically available only with an adjustable rate. Therefore, if you’re someone who abhors risk or uncertainty of any kind, a HELOC might not be right for you, especially if you feel interests rates will be on the rise.
Some lines of credit, however, allow you turn some or all of your loan balance into a fixed-rate loan at the end of the draw period. Moreover, you always have the option of refinancing — consolidating your outstanding balance in your home equity line with your existing first mortgage into a new first mortgage. You could also replace your line of credit with a fixed-rate second mortgage. You can do all this, provided you still have the necessary equity in your home. For more about HELOCs, visit the MyBankTracker HELOC page.
Assemble your fix-it list
With a HELOC in your pocket, you can begin prioritizing your home improvement projects, including costing them out. There are several home improvement sites to help you with your estimates.
Here’s one example of how you might use a HELOC to tackle some much-needed repairs around your home.
The beauty of the HELOC
Although you might apply and qualify for a $20,000 HELOC, you can draw down just the sum you need to pay for one project at a time. The best part is, you pay interest only on the money you use.
So, if you chose to repair your toilet, dishwasher and pipes first, for a total of $3,250, you would pay interest only on that amount. At the same time, you would have $16,750 remaining for your future home improvement projects.
Prevention is still the best medicine
Prevention should always be your top priority. For starters, check for the usual suspects for leaks. Routinely inspect the area around the refrigerator (ice maker), washer, dishwasher, water heater, sinks, and toilets for drips, puddles and floorings that’s discolored, warped, or moist.
Check your water bill. If you haven’t significantly changed your bathing, tooth-brushing, laundry, food preparation, dishwashing, gardening and recreational activities, and your water bill continues to rise, you could have an undetected leak. In fact, it’s estimated that 14 percent of a home’s water usage is lost to leaks, or about 22 gallons a day, which is equal to the amount of drinking water a family of three consumes for two weeks.
Water loss also can occur if your water pressure is too high. To check if your home’s pressure is in the normal range, between 45 and 65 psi, pick up an inexpensive water pressure gauge at your hardware store and hook it up to a hose bib. If you’re over the limit, install a water pressure regulator.
You can also attach inexpensive, battery-operated water detection devices and sensors that will detect water loss. More sophisticated systems, normally installed by a plumber or electrician, can shut down your home’s entire water supply, if needed.
Finally, if you’re headed out of town for an extended period, consider shutting off the water supply to all your home fixtures. Also, after you’re positive everyone is out of the house, it wouldn’t hurt to make one last sweep of your home to make sure you don’t see or hear any running water.
If you’ve taken all those preventative measures and an accident still occurs, it’s good to know a HELOC has your back.