Biweekly payments trim time of mortgage's term

Dear T.K.: The reason you will pay off the mortgage more quickly is that you are using their money for a shorter period of time. If you are comfortable with that, I have no problem. If you invested the money elsewhere, however, the likelihood is that you would have a larger account. All of these various options that banks offer have one thing in common: to save interest. You use the money for a shorter period of time.

Electronic transfer timing

Dear Bruce: If my electronic funds transfer is processed on the fifth of every month and sent to my bank on the sixth, why is it not posted into my account until 10 p.m. on the seventh? It seems to me it should be instantaneous. Can you explain? – D.M., California

Dear D.M.: Most banks only post once a day, and there can be a 24-hour lag. It’s not a question of them trying to beat you out of one day’s interest, which would be insignificant, although in the aggregate I suppose it could be meaningful. They need to have a system where the various transfers are done at specific times, not when and as they happen. I wouldn’t lose a lot of sleep over this issue.

Tax-free school savings?

Dear Bruce: For 14 years, my husband purchased two $100 savings bonds a month. The bonds have never been cashed, and they are to be used by our only child for college. The child is now a high-school senior, and we want to begin cashing in the bonds. We have been told we will take a big hit on the interest this year, as far as our taxes are concerned. We also have been told this might not be necessary because the bonds will be used for a college education. Who is right? – Reader, via e-mail

Dear Reader: Under certain circumstances, with income limitations, if the savings-bond money is used for college purposes, it can be totally tax-free. Please consult your tax adviser to see if you qualify in terms of income and how the money must be expended to get this deferred tax status.

Paying cash vs. borrowing

Dear Bruce: Is it better to pay cash for a home or to carry a mortgage for the interest deduction? – E.B., via e-mail

Dear E.B.: I am constantly amazed at how many folks are so concerned about the interest deduction on a mortgage. While it is a variable to be considered, it certainly is not the primary one. The answer to your question is relatively simple. If the money you would use to pay cash is earning a decent amount that is more than the cost of the money for the mortgage, by all means, get the mortgage. On the other side of that, if your credit is a little bit shaky, or you are risk-averse in terms of investments and your savings earn little, it may be to your advantage to pay cash. You didn’t mention your age, but for a younger person, paying in cash is seldom a worthwhile way to go. On the other hand, if you are older and would gain a certain amount of comfort from having the home paid for, that is another matter. Reduced entirely to the numbers, the math is easy to interpret.

Searching for decent rates

Dear Bruce: What do you consider a decent-paying certificate of deposit rate on short-term CDs (seven- to 15-month)? – S.M., via e-mail

Dear S.M.: Decent is a relative term. During the Jimmy Carter days, decent might have been as much as 20 percent and other times less than 3 percent. At least once a week, the financial sections of most newspapers provide a cross section of CD rates. And it isn’t necessary to buy one locally, as long as you are certain that what you buy is Federal Deposit Insurance Corp.-insured.

Chipping away debt

Dear Bruce: My husband and I have $10,000 in credit-card debt. We have been working very hard to pay down the debt, as our goal is to become debt-free, including paying off our house. We also have money invested in the stock market. Should we sell some stock to pay off the debt as well as make a few minor (much needed) home repairs? Or should we just keep chipping away at the debt as we can? We are in our early 40s and have a separate retirement plan as well. Thanks for any guidance. – L.C., via e-mail

Dear L.C. Generally speaking, “chipping” away is the way to go; however, you left a couple of facts out that make it difficult to come to a good conclusion. You mentioned you have stock – how is it doing? The likelihood is you can borrow the money for the needed home repairs at a lower rate and benefit from the stock appreciating in value.

As to the credit-card debt, you haven’t mentioned the interest charge. If your credit is in good shape and the interest is high, you should consider transferring it to another card where the interest is very, very low and then, most importantly, not use that card for any other purchases. In the event it is a low rate now, leave it alone and chip away as much as you are able. As to the home, once again depending on the interest rate, which likely is lower than the earnings on your stock, continue to pay it off as agreed. Heaven forbid that you’re involved in an adjustable-rate mortgage; if so, now is the time to make every effort to find a permanent fixed rate.

Reverse-mortgage issues

Dear Bruce: I am 80, and my wife is 79. We live in Las Vegas. Our home has an estimated value of $450,000 and rising. We have been supplementing our income with some stock liquidations that have additional fees. Do you think we’re candidates for a reverse mortgage? Would the bank charge interest at some fixed rate? Would these reverse-mortgage receipts be subject to income tax? We haven’t talked to a bank yet. We wanted your advice first so that we don’t stumble into a bad deal. - Reader, Las Vegas

Dear Reader: A reverse mortgage might very well serve you and your wife. You both have reached the age where reverse mortgages have much to recommend them. Simply, a reverse mortgage is borrowing against the equity in your home, and the debt will be retired upon your passing. The older the person taking the loan (i.e., the lower the life expectancy), the higher the payout. Since this is borrowed money, there are no taxes on it whatsoever. The lender will charge a previously agreed-upon rate of interest. The largest argument against a reverse mortgage is that it uses capital that some people would like to leave to their heirs. In my opinion, this is no argument at all. You earned the money; there is no reason why you shouldn’t enjoy it.

Credit report errors stick around

Dear Bruce: Recently, my wife and I applied for refinancing on our home. We have been in this house for almost seven years and have never once been late with a payment. We were shocked when we were denied the refinancing, owing to a delinquency reported by our credit-card company. We have not used this card in a long time and had transferred the balance of a few hundred dollars to another credit card, which we had been paying faithfully. When this was brought to my attention, I immediately sent the money to the company with a letter of explanation. Fortunately, the bank understood and the refinancing is now in place. How can we get this bad information off our credit file? –Reader, Phoenix.

Dear Reader: Because your balance was not transferred as you thought, you are now stuck with this on your reports. The fact that you did it inadvertently is not the issue. The only redress you would have is to insert a letter into each of your credit files with Equifax, TransUnion and Experian, explaining what happened. Every entity that requests your credit information will be provided with that letter of explanation. It may not help a whole lot, but it surely can’t hurt. This is another example of why you have to stay on top of your credit obligations. A simple miss can have enormous repercussions.

Choosing investment vehicles

Dear Bruce: My father-in-law recently passed away. After paying off all our debts, we will still have $80,000 in cash. While I would like to save this for our retirement, my wife is very conservative and does not want to invest in any stocks, mutual funds, etc. I would like to respect her wishes, so we are looking at certificates of deposit and government issues. What do you recommend? We are in our late 20s. – F.C., via e-mail

Dear F.C.: I would urge your wife to get an education in how to invest money. If you follow her plan and stay strictly with the CDs and government issues, you will literally be throwing hundreds of thousands of dollars away over the 30-plus years between now and your retirement. It’s frightening that someone as young as she is not willing to take a decent risk in the marketplace. Over the long pull, she is going to get hammered. Why don’t the two of you do a little studying together? You might take an investing course at the local community college or go to a seminar or two. By all means, read current periodicals devoted to investing.

Risk, reward go together

Dear Bruce: At present, I have quite a bit of money in a platinum checking account at 1.3 percent interest. Is there any way I can get a better interest rate (secured)? – Reader, via e-mail

Dear Reader: Your last word changed your question rather dramatically. There are lots of ways – corporate bonds, government bonds, etc. – where you can double or triple this percentage but, as in any case, there is a downside. In the case of the bonds, if you had to sell them before maturity and interest rates rise, you would very likely be penalized on your principal. Corporate bonds can go bad, but risk and reward are definitely handmaidens. I believe, with just a modicum of risk, you could do considerably better. Bear in mind there’s a great deal of speculation and interest rates are going to rise, although not enough in the short term to make any difference in the answer I’m giving you.

Bruce Williams is a national radio talk show host and syndicated columnist. He can be reached at bruce@brucewilliams.com.[[In-content Ad]]