Any financial whizzes here?

[Xithras]

I just refi'd my house to do some home renovations, but was informed by my contractor that we need to hold off until next spring because of the weather. This means I'm sitting on about $40k cash for 5-6 months, and I'd like to do something more useful with it than just dumping it into a 0.5% savings account.

What are the best options for short term investments like this? I'm fine with a little bit of risk, but I'd prefer to stay pretty safe with my kitchen money :)

[Rabrrrrrr]

1. Definitely don't do stocks! Go with a 6 month CD,

or maybe some bonds or something.

That's all I would be tempted to do with borrowed money.

[flvegan]

2. Most banks will also want to know UP FRONT if you plan

to use their money to invest.

I'd go with paying it back to the bank. You're paying interest on money to sit in a taxable situation to begin with (investments or otherwise, you'll have to pay capital gains on it). Tell them what happened, and reborrow in 6 months. Do so with the agreement up front that the bank will write you a second home improvement loan at the same rate 6 months from now.

[sendero]

3. If it was a refinance..

... i.e. secured by a mortgage on real property, the bank has no say unless the renovations were part of the agreement.

I'd just get a CD myself, there are really no "safe" options that pay much that don't involve serious risk.

[flvegan]

4. Right, I assumed that

"I just refi'd my house to do some home renovations" was probably part of the $40k windfall in loan to value.

Still, the interest rate on the loan ($40k at 5% is $1k over six months, P&I, actually) is gonna trump any CD I've seen since 1988.

[sendero]

5. You're right..

.... there is no way to come out ahead IMHO.

He could pay it all back assuming there is no "prepayment penalty", but that exposes the risk of having to pay a higher rate in the spring or not being able to get the loan at all.

There is no "safe" way to come out of this without losing some cash I'm afraid. Other than finding another contractor.

[flvegan]

7. Bingo. That's why I suggested making an upfront

agreement with the bank to offer a 2nd at the same rate. OR, modify the mortgage to forgive interest payments for 6 months on the $40k.

That, or enter an agreement with the contractor that he/she gets paid up front now, for work done in 6 months, but I'd want his/her earned interest on the $40k payment to be deducted from the final bill. That's a longshot, though, and risky.

[Xithras]

9. The contractors decision was for my own comfort.

I'm in Northern California, not southern, and I'm nowhere near the coasts, so the weather gets very wet and the temps drop to freezing in the winter. Since the renovation includes removing a large chunk of exterior wall and redoing part of the roof, he didn't think it wise to start it right before the weather turned bad. Traditionally, we start getting our first winter storms around Thanksgiving here.

And yes, we're living in the house through the whole thing. My garage is becoming a kitchen-slash-dining room, and my living room is going to have an unobstructed view of my front yard while the construction is going on :)

[Xithras]

8. Indeed it was

I already had a first and second on my home that I was wanting to consolidate (my second still had an 8% rate), and since I have about $150k in equity I just went ahead and pulled $40k out to renovate our much abused kitchen.

I could pay it back to avoid the interest, but that would mean either refinancing again in six months and taking a loss on the roughly $5,000 in closing costs that I just paid. Alternately, I could just take out a second mortgage again at that point, but very, very few institutions are willing to offer 30 year fixed rate home equity loans at rates comparable to what I have on my first right now.

Basically, any course of action that I take will result in my taking a bath for several grand. Just dealing with the interest seems like the path of minimum damage, and investing it seemed like a great way to both keep it safe AND recoup at least part of that loss.

[swag]

6. emigrantdirect currently pays 4% for no fees, online savings accounts

http://www.emigrantdirect.com/

The rate has been going up as the Fed has raised rates, by the way, so that rate is likely to rise at least a couple more times in the next few months.

I'd just stick it in one of these on-line savings accounts to maintain liquidity and avoid any commissions you might get charged in buying a CD.

on edit: see above considerations re: nature of the refi agreement, etc.

Good luck.

[Deja Q]

10. Well, when it comes to money AND whiz, it's all down the toilet from me...

I wish I could be of help... but if you get a smile out of this wacky post, then I did all I could do.

[Telly Savalas]

11. Any horse racing tracks nearby?