Dear David,

I’m a retiree who lives alone. My house is paid off, but I’m on a fixed income with $400 of discretionary funds each month and minimal savings. I thought things were going well until I learned that my roof needs to be replaced this fall. The $10 thousand expense will more than deplete my savings and I’m not sure how I’ll make it work without selling my house. I’d really hoped to stay here for another five years. – KEEPING A ROOF OVER MY HEAD

DEAR KEEPING: Life without a financial cushion can feel overwhelming, even when your home is paid off and it feels like you’re living comfortably. Many house components have an economic life that will run out eventually. Carpeting, cabinets, vanities and even air conditioners can be updated at your convenience. Failing fundamentals like the roof or furnace must be addressed quickly, or you risk further damage to the house.

With your roof repair a few months away, you have time to do a bit of financial planning. My first thought is that you consider taking out a small line of credit against your house. Your income would need to support this, but in the grand scheme of home ownership, it should be more than manageable. Make an appointment with your bank manager to discuss your options. To put things in perspective, a $10 thousand line of credit to cover the new roof may only end up costing you about 60 dollars per month in interest. Some banks may offer an unsecured instant line of credit at a higher interest rate, to cover fundamentals like a roof, furnace, or catastrophic repair. 

Look at arranging a line of credit for more than the amount you need if possible, so you can protect yourself if additional challenges arise. A line of credit only needs to be paid if it’s in use, which makes it an excellent financial tool to have at your disposal in case of emergencies. The economic life of a roof or furnace can be 20 years or more. With your limited discretionary funds, I’d prefer you not deplete your savings on this type of long-term investment when you only plan to be in the house for the next five years.

Fortunately, there is time to explore your options. Find a reputable contractor who can accommodate your timeline and do the job at a competitive rate, and read the fine print in the contract. For fundamentals like a furnace or air conditioner replacement especially, be wary of “rent-to-own” and “lease-to-own” scenarios. In my experience, these tend to come with strings attached, exorbitant acquisition costs, and high interest rates spread over a considerable period of time. When you sell your home, the buyout on these contracts may cost you much more than other financing scenarios.

PRO TIP: A line of credit on your home is a wise thing to have, even if you never use it. As your income drops in retirement, it can be more challenging to get a loan approved under current lending guidelines. Think of a line of credit like an automotive airbag, not an ATM. You may never use it, but it’s there to keep you safe just in case. #Advice #AskDavid #TheNegotiator

David is a top-selling Broker in Kitchener-Waterloo Region. He works personally with you when selling or buying your home. Call or text today for your free home evaluation! 519-577-1212.