Author Topic: Home Maintenance Costs - when does it make sense to finance?  (Read 705 times)

MrDelane

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I'll try to keep this quick, feel free to ask any additional questions for clarification.

We have a bid for a job to replace all the siding and windows on our home.
This isn't about the job itself, but how we should pay for it.

The company has the option of paying cash or financing over a 12 month term (no additional interest).

The cash price is $20,502.
The financing price is $21,782.

So it's a total difference of $1,280 in order to finance over 12 months.

We have the cash on hand, but it would essentially wipe our our emergency fund, and slow down our after tax investing for the next year(?) as we build it back up.

Alternatively we could pull money out of a brokerage account, which would have some tax liability.

Or, we could finance it - which would slow our investing for the next 12 months, but leave everything else intact (but cost us the additional $1280 in total).

I should add that both my partner and I max out our 401Ks and IRAs, and no option would affect those contributions.  We would only be slowing down or stopping our after tax contributions to make up the difference.

So - what would you do?  And why?

I'm leaning towards paying cash.
Just wondering if there is something I'm missing, or some reason why it might make sense to finance this.

Or if there is some other option I haven't considered.



RWD

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Re: Home Maintenance Costs - when does it make sense to finance?
« Reply #1 on: June 14, 2018, 08:31:51 PM »
That works out to effectively a 6.2% interest rate. According to the Investment Order you should pay off debts above ~5.9% before investing in a taxable account. So you should pay cash for this.

Since you'll be depleting your emergency fund you can use a credit card for short term emergencies that you can cash flow (pay off the credit card each month). For longer term emergencies you'll need to dip into the brokerage account or get a HELOC or something. Not a big deal.

MrDelane

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Re: Home Maintenance Costs - when does it make sense to finance?
« Reply #2 on: June 14, 2018, 09:27:09 PM »
That works out to effectively a 6.2% interest rate. According to the Investment Order you should pay off debts above ~5.9% before investing in a taxable account. So you should pay cash for this.

Since you'll be depleting your emergency fund you can use a credit card for short term emergencies that you can cash flow (pay off the credit card each month). For longer term emergencies you'll need to dip into the brokerage account or get a HELOC or something. Not a big deal.

Thank you, RWD.
I really appreciate your incredibly clear breakdown.
That makes it pretty black and white.