Thursday, April 16, 1998

Q. I was checking with banks on refinancing my home. I currently have 10 percent fixed with eight years to go. I have about $42,500 to refinance. With taxes and insurance my monthly note is $804. NationsBank asked if I had considered a home equity loan.

They said that I could use it to pay off my present mortgage and lower my interest rate to 7 or 7 3/8 percent. There would be no closing costs and my monthly payments could be lower, depending on the maturity of the new loan— 12 months to 15 years.

Since I have only 8 years to go, I do not wish to go back to 15 years. What are the drawbacks, if any, of such a refinancing? What would make more sense, refinance or equity loan?

—C.M., Melissa, TX

A. Thats a good suggestion from NationsBank. The trouble with refinancing a mortgage with a small balance is that the mortgage lender has to do just as much paperwork as with a large loan so the expenses can be prohibitively high. Your banker offered a route that provides great flexibility, carves out most of the interest rate savings you could get, and costs nothing to put in place. Many people in your position— those with old high rate mortgages and small balances— should consider this alternative. Readers who contemplate doing this, however, should make absolutely certain that there are no charges for putting the loan in place: Ive already received letters from borrowers who got unpleasant surprises from lenders at closing.

Q. I am seeking some facts that will help me keep "afloat" financially for the few remaining years of my life. I am 81. My wife is 86. She is brain damaged and needs care for all her bodily needs. She had a bad accident and I have been her "caregiver" for the past 15 months. I had to move to an Assisted Living retirement community and have monthly expenses of $2,500. We get Social Security of $1,250 a month and draw the balance each month from our investments. We have $7,750 in savings accounts, $76,000 in CDs (one is maturing this month, the other in September); and $87,000 in a number of mutual funds. What do you suggest for a good return?

—a WWII Marine in Rantoul, IL

A. Its a good time to remember Will Rogers and his concern for the return OF his money, not the return ON his money. Youve got about $170,000 in financial assets and a lot of very difficult stuff to deal with.

Probably the most important fact here is that changes in rate of return wont change your fundamental security. If you average a 5 percent return, your $170,000 will last 201 months; if you average a 7 percent return, it will last 271 months. The most important figure here is the first 200 months— thats nearly 17 years. Whether the money is invested at 5 or 7 percent, outliving it wont be a problem.

The second important fact is that your expenses could increase substantially before running out of money would be likely. Using 5 percent as a return, your money will last 105 months if the withdrawal rate rose to $2,000 a month; 80 months at $2,500 a month; and 64 months at $3,000 a month. Bottom line: youve got the financial ammo you need to hold this position.

Q. I just need some clarifications on this. I am from the Philippines and would like to ask this. If you had about $3,750 in cash which you inherited, which way would you chose to maximize earnings and minimize risks - keep the money , deposit it in a bank, invest in stock, or buy Treasury bills?

—I.M. @

A. With $3,750 your options are limited. CDs don't pay very well; you don't have enough for the shorter term Treasuries; and stock mutual funds have a great deal of risk. I'd try the Strong Advantage Fund, a very short term (under 1 year) corporate bond fund. The fund provided a yield over 6 percent in the last twelve months and fluctuates very little in net asset value per share. You can learn more by calling the fund company at 800-368-1030.