DU Money gurus... your advice desperately needed!

[bain_sidhe]

We've got to reshingle the roof. We knew this was coming, and had saved some money for it, but we weren't planning to do it for a year or two... so I put the money in a CD that doesn't mature until Jan of next year. But the winter damage (there's always some) looks worse than we thought it would be, and we really need to do it this year, *before* it starts leaking.

We have three choices, and I haven't moved on it yet because I can't decide which one is the smartest way to go.

1. Take the money out of the CD and pay the penalty.

2. Take a loan against the money in the CD and pay 3% over the certificate rate. This ties up the money in the CD (with a fairly low rate) until the loan is paid off, but it comes out to a point less than their home equity loan rate - and doesn't put the house at risk if something catastrophic happens.

3. Use our "emergency cushion" - which will leave us NO cushion if one of the several things that might go wrong, do go wrong - second car dies (we need two for the school year, but can scrape by with one for the summer), washer & drier die, plumbing goes kablooie - all are realistic concerns, since they're all old. If any of those happened, we'd end up taking out a loan (or using the credit card) at a higher rate than either the CD-secured loan or an equity loan.

There's really a fourth option, taking out a home equity loan, but as things stand right now, we have enough saved between the CD and the "emergency cushion" to pay off the mortgage if something catastrophic happened, and I'd really hate to give up the sense security that gives us in today's economic climate. Of course, taking out a loan against the CD would also mean we could no longer pay off the house without dipping into retirement savings (which are already smaller than I'd like, thanks to 2001). But at least the house wouldn't be at risk from the reshingling loan...

What should I do??? :shrug: I've been dithering for a month now, and am no closer to a sense of what would be best. Any advice would be appreciated!

[brokensymmetry]

1. I'd take a loan against the CD.

Rates are low right now, and you need that emergency fund for peace of mind.

Also, paying off the loan ontime builds credit.

I would avoid the equity loan if at all possible.

[bain_sidhe]

5. Credit rating's not a problem

We're A+ or whatever they call it, and the house is the only thing we owe on right now. But you're right about needing the emergency fund for peace of mind. Nothing may happen. But I'd hate to bet the "farm" (or at least the house) on it, and lose. The fact is, we didn't want to do anything till after the election... I think if bushit "wins" - however that happens, our economy is going to tank when foreign investors pull their money out. But I don't think the roof can take another winter.

They may not let me do the CD-secured loan anyway. It's term is up before the loan would be paid off. They have a "wiggle" clause that they MIGHT do it with an automatic roll-over into a new CD that matures at the end of the loan term - but it's at their discretion. I expect they will - as I say, we've got great credit - but they have the option of not doing it.

[T Roosevelt]

2. Some combo of 2 and 3

Don't pay a penalty if you don't have to.

[Les BOOGIE]

3. get your ins co to reshingle the roof

[bain_sidhe]

10. That would be fraud.

You are the weakest link... good bye!

[Onlooker]

4. I'm no guru, but have been in a similar situation

Look into borrowing from your retirement plan. Some plans actually allow you to pay the interest to yourself.

Look into a home equity line of credit for the minimum amount you'll need for the reshingling. The payments are low and interest is tax deductible, bringing the effective rate down considerably.

At any rate, options 1 and 3 sound bad. With 1 your taking a loss for no apparent reason and with 3 you'll be worrying more than you need to.

[bain_sidhe]

8. There's a thought

The retirement plan loan, that is... I'm very conservative, financially. I don't put anything at risk that I don't have to, and don't borrow any money I don't have to. But I'll look into that idea, it might be workable - and we've got 15 years before retirement.

I'd really rather not put more debt on the house - and we've gotten the mortgage down to the point where the tax deduction for the interest isn't enough to beat the standard deduction. Plus, I firmly believe that housing prices are going to crash within the next two years, and may take some mortgage companies with them. If (GODDESS FORBID) the loan gets called in, I want to be able to pay it off rather than have to sell. (That comes from personal experience... in my young and foolish youth, I bought a condo when prices were high, and couldn't sell it for the amount on the mortgage when the economy crashed. While we wouldn't have that problem now - we've got probably 80% equity in the house, so even if prices declined precipitously we'd get enough to pay off the mortgage... but without enough left over to get anything else.)

[KoKo]

6. Here's a plan likeyour option 4

Take out just enough home equity to cover the roof cost but ask in advance how much it will cost until January, including the hidden charges.Make sure you do it in the next 2-3 weeks before the fed raises rates and watch for their adjustables upward. Then if that cost is much less than your CD interest in January--take the risk for 7 months. But if the HE costs more than the CD interest and penalty, bite the bullet and cash it out. No benefit to the risk in this financial climate.

[bain_sidhe]

9. There's another thought

take the equity loan, but pay it off as soon as the CD matures... Hmmm

LOTS of good thoughts here! (more research for me, but hey, I work cheap!)

[drthais]

7. although not a 'money guru'

my advice is:

whatEVER you do, DON'T take a Home Equity Loan
this is a trap
and will, in the long run, really bog you down

if it were ME
I would go ahead and use the cushion
and then, if it really comes to that
take the hit on the CD
but, in the meantime, build up the cushion again....

[54anickel]

13. There are usually a lot of costs involved. Appraisals and such for

the equity loan route. Then they tend to give you more than you want or a credit card that draws on you equity. Not a good thing unless you are extremely disciplined.

[bain_sidhe]

14. I'd never do a revolving Home Equity loan

I.E. a "line of credit" type loan. Fixed rate/term loan is the only way I'd go. But that puts the interest rate higher by (at the present time) a couple of points, so the CD-backed loan is cheaper. A line of credit H.E. loan would actually be cheaper than the CD backed loan, but, as I say, I've already ruled that out.

Plus, as you say, there's fees. - An appraisal fee at minimum, probably loan origination. I'm looking into Frodo's idea now...

[Frodo]

11. Here's the banker's take on it. Consider paying the penalty.

Maybe your bank is different from mine (and it's been awhile since I sold CDs) but penalties are usually based on some percentage of your interest. So a one year CD might have a "3 month interest penalty" and maybe they go as high as "six months" on longer-term CDs (obviously the terms of your CD are what count).

With rates as low as they have been, 3 months worth of interest may be a miniscule amount of money. Certainly less than the extra interest you will pay on the loan over that same time.

You might also get lucky... lots of banks offer "penalty-free" CDs and with the expectation of rising rates a good CSR might have offered you that as an alternative. In may day you took a very small (some times zero) hit on the interest rate in exchange for a free withdrawal. Check your account.


Or maybe buy some of that cheap plastic wrap and cover the roof with it? :-)

Best of luck.

On edit - I was just thinking (doesn't happen very often so bear with me). The roofing company may offer attractive financing - maybe even "no payments till" or "6 months zero interest". You may be able to hold off paying them till January.

[54anickel]

12. Damn, I tend to agree with Frodo! (Whodathunk), but I'd also

look at borrowing against it and see if you can just use the money from the CD when it comes due to pay off the loan in January. Most banks allow for that and there's usually no pre-payment penalty on a secured loan. See which of those 2 options cost less.

I personally would never advise borrowing from a retirement account, it's not a good habit to get into. If it's a 401K, you would have to pay that loan off in full should you loose your job or the plan be terminated for some other "unknown" reason.

Cripes, now I can't remember what your other options were.

[bain_sidhe]

19. Almost missed this

I didn't know about the retirement account (about having to pay it off in full if the plan's terminated). I don't think it would be, but you never know. And 'sides, it's only worth half what it was worth three years ago as it is. I'm REALLY against doing anything that might give it another whack.

Oh, well, given my conservative nature (with our money, anyway) it looks like I'm down to use the CD or use the cushion, unless the roofing company has some really outstanding financing option. And that's ok, I think I could live with either one. Although I hate the idea of not having the ability to pay off the mortgage if I had to.

(I say "I" all the time, even though it's really "we" - but hubby's idea of financial planning is distributing the bills evenly throughout the mattress. So, it really is "me" when it comes right down to deciding, it just happens to be his money (most of it, anyway). :D )

**edited to add: I don't understand your posts in the Stock Market Watch thread either, so that must me you know lots more than me!**

[bain_sidhe]

15. Thanks Frodo!

I see your posts all the time on the Stock Market watch thread (although I confess, I don't understand half of what you say), but I didn't realize you were "in the biz" so to speak...

Well, the penalties are pretty hefty - basically, all we've earned on it so far. (Specifically, all dividends earned to date, not to exeed 180 days - we're coming up on 180 at the end of the month.) PLUS, if I wait any longer, a penalty based on the difference between the CD rate and the regular savings rate (about 2%) for days over 180 days.

But it's still cheaper than the added 3% on the whole amount, since the dividend rate is 2.35%.

::smacks self on head:: Y'know, if I'd have thought about it, I would have realized that earlier. Sheesh.

OTOH, we DO have a roll of visqueen in the garage... ;-).

I'll see what the roofing company has to offer. Once I pick one and get quotes. Maybe I can work a 20% down, balance in January kinda thing...

[Frodo]

16. At first I thought that was alot - then I looked at it again.

That seems to say they won't touch your initial investment? That's pretty good. Ours (if my memory is correct) would be smaller (enless you're talking about a long-term CD) but if you had to pay a 3-month penalty on a CD you had opened only two weeks ago you would still pay the full penalty (and lose money).

Both ideas make their own kind of sense, and I guess since you've owned it 6 months anyway it all balances out in the wash.

I'd include financing options as part of the comparison of prices.

[bain_sidhe]

17. Right, none of the initial investment is at risk

If I withdraw before 180 days, I lose all the dividends. After that they take the 180 days dividends PLUS a penalty based on the difference between the regular savings rate (absurdly low - .35%), the CD rate (2.35 - 13 month certificate), and the number of days after 180 days. But that would still be lower than the dividend earned for those days, so, no, they wouldn't touch the initial investment.

Am starting to get quotes now.

It also occurs to me that, on the other hand, maybe I should just go ahead and use the "cushion" and use the CD as an emergency cushion. My cushion, even at the higher-than-regular "money market" rate, is only earning .65% Of course, they're now offering a better rate on the 13 month CDs than the one I got in December. True, it's only .10%... but I suspect that will go up in the next six months.

No, wait... on the other other hand (the Gripping Hand), IF an emergency happens, that would make the cost of using the cushion .65% (lost interest) + 6 months CD dividend, + 2% penalty for everything after 6 months... I think...

:argh: I hate money. Except when I love it. ;-)

[mastein]

18. Use your good credit

Get a credit card with a 0 interest intro period and or low interest rate for the time being (and if you are just now getting quotes, by the time they schedule etc and you really have pay it will be June, easily) and let the debt sit on that until the card until the CD matures. The finance charge for the short period if any will more than likely be lower than the penalty on the CD. But be smart and compare

The Other idea of the retirement account is good as well, but if you use the retirement account be sure not to repay with the money from the CD as one of the benefits of a 401(k) is that it is tax deferred.

[54anickel]

20. Great idea! If you can find one quick enough. If you're really lucky

like one friend of mine, your mailbox is probably overflowing with the damned offers weekly. :evilgrin:

[bain_sidhe]

21. Ack. Now I have to dig through the garbage

and tape them back together! (I always rip them up and throw the pieces into two separate waste cans.)

Worth checking out, though.

[amazona]

22. what i did

A tropical storm dropped a huge oak tree on my house and destroyed about half of it. Homeowner's insurance covered all repairs except the $500 deductible including a new roof.

On the other hand, I would have to say, it was so stressful and sooo not worth the angst, but I did come out ahead financially because I was a year or two away from needing a new roof.

SO I'd say if you live in tornado alley or in a tropical storm/hurricane area, at least try to tough it out through the hurricane season and see what happens.

It really makes you mad if you've just turned your house upside-down to do a lot of work. In our case, our floors were brand new, and had to be completely replaced. Sigh. Had we but known the future, we wouldn't have had to go through that twice.

OK, assuming you are not going to get hit by a tree or a tornado, I would cash in one of the CDs, the penalties for most these days are pretty minimal -- I think you lose three months interest which is pocket change at these low interest rates. Just my two cents. On Edit-- read the other posts and was surprised to see your bank had such hefty and confusing penalties for your CDs. Argh! I've also used another poster's suggestion, getting zero percent loans on credit cards BUT be sure it's one of those special offers where you do not pay a fee for a cash advance.

[indypaul]

23. Compare penalty

to what interest you would pay using CD as collateral for
a loan.
Think you will find penalty not all that bad if CD is
at a current low rate. Most early withdrawal penalties
are simply one quarters interest. If that is the case
paying a rate in excess of the CD yield would not be very
wise. Secondly, consider option four depending on your
risk tolerance you will at least postpone the necessity
of cashing CD and borrowing a little time before you may
really have to make that decision.

[German-Lefty]

24. I'd say use the cushion

That's what it's there for right? If you get in trouble before January, you can then borrow money against the CD or home or pay the penalty.

The money in your cushion is probably not giving you much intrest if any.

[bain_sidhe]

25. Good point - the cushion pays the least

of anything, except the checking account. It probably won't cover the whole amount though, since I have to leave about half of it just to maintain the "fee-free" status of all of our accounts...

Still waiting for quotes, so I'm still not sure exactly how much it will cost. My sister had a similar house (although with a larger roof area, the "problems" were about the same - steep pitch, old house) quoted several years ago for $10,000, so that's what we're basing our guestimates on. But things have changed since then... for example, the Resident Chimp took office...