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Cash or Loan?

Chris Farrell May 5, 2008

Question: Hi, I have to replace my roof (sooner then later). Should I pay cash from a money market savings account, or take out a loan? Thank you, please get back to me rather sooner then later 🙂 Gabriele, St. Paul, MN.

Answer: This is really a money management question. The baseline answer is pay for the home improvement with cash from savings. This way, you don’t take on any debt. Plus, the interest rate you’re getting on your savings is probably a paltry sum anyway.

However, there may be some good financial reasons for you to hoard savings right now. If that’s the case, then by all means take out a loan. The best loan is probably a home equity loan. It’s ideal for a lump sum payment such as a new roof, and you’re preserving the value of your home. The rate of interest is fixed, which makes it easy to plan. You could take out a home equity line of credit, but the interest rate is variable. It’s a loan option best tapped for projects that are done in batches or over a long period of time.

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