Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: MONDAY, February 17, 1992 TAG: 9202140467
SECTION: BUSINESS PAGE: A-7 EDITION: METRO
SOURCE:
DATELINE: LENGTH: Long
IN AN EXTREME, TAP YOUR 401(K)
Q: I am 52, single and earn $30,000 a year. I have used all my savings to pay nursing home and funeral expenses for my mother.I need a $6,000 operation with the money mostly up-front. I have been waiting since September for approval from my insurance company. The insurance company has denied benefits. I should have the operation within the next several months because I am in constant pain.
I have cut expenses to the bone and am trying to save $150 a week. I have three years left on my home mortgage. I put 16 percent of my salary into a 401(k) plan. I have U.S. Savings Bonds of $5,000, a $1,000 CD due in February and a $500 tax refund coming. How should I meet the operation expense?
A: You don't say why the insurance company rejected your surgery. If you think there is the slightest chance that your policy should cover the treatment you need, you should seek help from your employer's personnel department to appeal the denial. If you fail to get help there, take your policy and other papers to a lawyer.
If your policy really does exclude the surgery, find out if you can borrow from your 401(k) plan for medical purposes. You will have to pay interest on such a loan, but under such a plan you will be paying that money to yourself. You would reap the benefit at retirement. If you can save as much as $150 a week, you should be able to repay such a loan with interest.
If you cannot borrow from your 401(k), consider applying for a revolving equity loan based on the value of your house. Rates on such loans currently are low, and like the interest on a home mortgage, the finance charge is tax deductible. Most banks are currently paying the closing and other costs, so you can avoid this expense now. But resolve to use your home equity only for emergencies, such as your surgery, because like a mortgage it reduces your equity in your home and could impact your ability to keep it.
Worthless paper
Q: While handling my father's affairs recently, I discovered that in June 1965 he purchased several shares of stock issued by North Carolina Oil & Gas Co. At purchase, the par value was $100 a share. Is this company still in existence or who I might contact for further information? I suspect the stock is worthless as I have never heard of the company.
A: You are correct in assuming that the stock is worthless.
Dean Penley, manager of the Roanoke office of J.C. Bradford & Co., said the company has little history. It apparently went out of business shortly after it was formed.
There is no market for the stock, Penley said, so your shares have no value.
Figuring Ginnie Maes
Q: I am interested in information about purchasing Ginnie Mae bonds. What is the current rate and minimum purchase? Over how long a period do you receive a return since I understand a part of the principal is returned with each payment of interest? I assume the rate stays the same but the amount of the interest would drop with each payment. I would also like to know how to purchase such bonds, preferably without the use of a broker.
A: Tully Tupper, bond trader for Scott & Stringfellow Investment Corp. in Richmond, said the rates on Ginnie Mae bonds change "minute by minute." As a general rule, he said, Ginnie Maes pay a half-point more than Treasuries.
That's because the risk is slightly higher than it is for Treasury bonds and certificates of deposit. Ginnie Maes are considered a conservative investment because the underlying mortgages in the pool are insured by an agency of the federal government. But the value of the bond changes, moving inversely to the direction of interest rates. And many people don't like the manner in which the principal is returned bit by bit over the life of the investment. It creates a problem for reinvestment.
Ginnie Mae bonds sell for a minimum of $25,000. But because principal is returned during the life of the bond, you can find one much cheaper on the secondary market. Tully said some trade on the secondary market for $8,000. Of course, that's because most of the principal has been eroded.
The term of the bond depends on how fast mortgages in in the pool are repaid. The higher the interest rates in the pool, the faster homeowners pay them off by refinancing when rates drop. Eight years might be typical, but we are in a strong market for refinancing.
As you suggest, the interest rate remains level but the amount paid drops along with the principal. Mortgages work that way.
Bonds are sold by stockbrokers.
You have two alternatives to buying your own bond.
One is to buy a share of a unit investment trust, which would give you diversification through a pool of Ginnie Mae bonds. Brokers also sell those shares, which trade over the counter.
The second is to invest in a Ginnie Mae mutual fund. This method also provides diversification. And you would have the option of reinvesting payments back into the fund, taking care of the problem of period small payments of principal.
Mag Poff covers banking and finance for the Roanoke Times & World-News. She will help find answers to your personal finance questions. Send them to her at the Roanoke Times & World-News, P.O. Box 2491, Roanoke, Va. 24010.