Home-equity line of credit could serve as temporary emergency fund

Q: We’re having much-needed house repairs done that will cost about $10,000. Although we could pay in cash, we were saving the cash for [tag]private-school tuition[/tag] for our two children and for emergencies. We’ve been told that taking out a [tag]home-equity loan[/tag] or [tag]home-equity line of credit[/tag] are two good options. What do you think? Calculated Industries 3405 Real Estate Master IIIX

A: I don’t think you should use every bit of cash you’ve put away for emergencies, but if some of that money is sitting around earning 1 percent interest, why would you borrow and pay 7 percent to 8 percent interest? The smart thing to do is to use the cash you have to cover the repairs but also get a home-equity line of credit. You should pay little or nothing to open it, and that will give you the comfort that you’ll have a backup plan in case something goes wrong and you need a fast infusion of cash. After you make the repairs, you can start saving again for tuition and other emergencies. Until you need the money, you will save the difference between what you would earn by having the money invested and the interest rate on the loan.

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