Keep the Cheap Mortgage, Use Funds Elsewhere
Q: I have repeatedly read that homeowners should consider paying off their mortgages to save interest and gain peace of mind. I have an 8.75% loan with a balance of about $33,000. Should I pay this off and reinvest my $200 monthly mortgage payment elsewhere?
I’m newly divorced and have never handled my own finances before. --B.N.
A: Our panel of financial planners recommends that you keep things the way they are. Here’s why: By today’s standards, your interest rate is modest. You can take the $33,000 you would use to pay off the mortgage and invest it in government bonds, either federal or double tax-free California municipals, and earn a higher rate of return over time.
Furthermore, once you repay the home loan, you lose the tax deduction of whatever mortgage interest charges you are paying. So, if peace of mind is your goal, invest your $33,000 in tax-free government securities and hold on to your mortgage for the modest tax shelter if offers.
Of course, if the rate on your home loan were substantially higher, say 12% or more, our financial planners say they would recommend paying down the mortgage.
Coping With Failed Thrifts, Federal Rules
Q: My S&L; was recently declared insolvent and purchased by another institution. So far, I have not been notified of any plans to lower the interest rate on my certificates of deposit, but I am wondering about the process for doing this.
I thought I read earlier this year that the Office of Thrift Supervision was considering a new rule that would guarantee depositors their existing interest rate for the first 90 days after their institution is taken over by another. -- R.A.W.
A: OTS spokesmen said they know nothing of the proposed rule you cite. However, a spokesman for the Resolution Trust Corp. said that group has considered, from time to time, making a change such as the one you mention. He said no change has been made to date because it would reduce the value of the S&L; being sold, thus increasing the taxpayer’s subsidy of the insolvent thrift.
Current requirements are that institutions taking over insolvent S&Ls; give depositors at least 14 days notice of any change in the interest rate they will pay on existing deposits.
In the meantime, depositors have the right to move their accounts to other institutions--even if the term of the account has not expired--with no penalty for early withdrawal. Depositors who do move their accounts within 14 days are entitled to daily interest on their accounts to the day of withdrawal and do not forfeit any interest payments.
How to Locate That Long-Lost Investment
Q: Several years ago, my husband and I invested in an oil and gas partnership.
For the last two years we have tried to locate the company, but have been unsuccessful. The last time we had contact with them they had an address in Dallas.
How can we track them down? -- P.F.
A: Because we’ve received a spate of similar requests in the last several weeks, we’ll repeat our advice on how to trace lost and forgotten investments. It does not matter where the company or partnership is, provided it was at one time based in the United States.
After researching the services and prices of several search companies, we’ve found that the best bargain is Prudential-American Securities, 921 E. Green St., Pasadena, Calif., 91106. It charges $35 per company researched.
Send duplicate copies of your stock certificates or other investment materials to Prudential-American with a check for the appropriate amount. A response should follow promptly.
IRA Investors Should Shun Most Municipals
Q: My individual retirement account contains shares of a mutual fund invested in U.S. Treasury securities.
Normally, interest from these Treasury securities is exempt from state income tax. Does the interest generated by my IRA holdings retain its state tax exemption when I withdraw it? -- R.F.
A: No. Any money withdrawn from an IRA--except contributions made on an after-tax basis--is subject to state and federal taxes when withdrawn. This applies as well to municipal bonds, which many taxpayers have mistakenly purchased for their IRAs on the assumption they could avoid taxes when they tapped into their IRAs.
