After a lull in building, business is picking up

[SoCalDem]

not for that extra bonus room or for a bigger garage or for a pool..

We are remodeling our kitchen & the guest bathroom, replacing all the windows, adding two french doors & re-tiling the whole house (our 40th anniversary present to us, from us).

We hired a contractor who is a longtime friend of our youngest son..and who actually livged with us when he was a teenager & had been kicked out of the house. He's all grown up and has his own construction company. Times have been a little lean, and he had some downtime, so we hired him and his crew to do the work..

Anyway, today we were catching up , and he said in the last 3 weeks he's gotten several calls to add onto homes.. Why?

Jobless relatives need to move in..

There is a contraction happening, little by little..but many people who asked him for quotes, have had to call back to say they need to postpone because the bank would not loan them the money, and they have no equity to tap..

One guy said the maximum the bank would loan him was $20K for 10 yrs @ 12.75%..and there was a high penalty if he paid it off early.. He said he would have to wait until he "sold some stuff".

This guy already has a mother-in-law living with them, and his 2 teen-aged kids, and now the daughter, her husband and their 2 kids need a place to stay.. They have a 3 bedroom 1600 sq st house :(.. and out here we don't have basements to finish off in an emergency :(

[Mz Pip]

1. $20K at 12.75 %

That seems like robbery to me, especially when you throw in the high pre-payment penalty. If people are signing up for loans like that it's no wonder the banks feel they can afford those big bonuses.

What kind of interest do banks pay on savings accounts these days? 2%, may 3%?

[SoCalDem]

2. our 1 yr CD is 2.38%.. 5 yr IRA 3.25%..reg savings 0.38%

checking acct savings 0.46%

[customerserviceguy]

3. Was that a fixed rate, or variable?

If fixed, it's not too bad for a second mortgage, especially with housing prices still in freefall. I would suspect that it's variable, and when it skyrockets, rates paid on savings accounts will rise, too.

[SoCalDem]

4. He didn't say..but it was too much for him to pay, so he put the remodel on hold

told Chad, he was going to try and sell a car..

[customerserviceguy]

5. I found a loan calculator

and the payment is about $300 a month. If he found a better source (like a credit union), and dropped the rate to about half of that (it would likely be a variable rate, however), it would make the payment a bit less than $225 a month.

That may or may not be a sizable drop, but he should do some shopping around. A lot of lenders who work with sellers of services or products pay kickbacks for referring the loan, and that drives the price of the money up. Frankly, in about three years, a 12.75% fixed rate on a loan with seven years left on it is going to look pretty cheap, in my opinion.