Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: MONDAY, August 16, 1993 TAG: 9308160005
SECTION: MONEY PAGE: A-8 EDITION: METRO
SOURCE: MAG POFF
DATELINE: LENGTH: Long
U.S. Savings Bonds. What dollar amounts are they sold in? What is the interest rate and how long would they draw interest? Over their life, how much would this $2,231.72 be worth?
Investment Company of America's American Funds group. There's a 5 3/4 percent one-time fee and about a half-percent yearly maintenance fee. I could add as little as $50 a month. I don't know if there would be a charge for a monthly deposit. Also, I don't know if I would add to the fund monthly or at all. Is this company safe?
Bank certificates of deposit.
Other?
A: U.S. Savings Bonds are for the cash portion of a portfolio.
They are sold for $25, $50, $100, $200, $500, $1,000 and $5,000 with a face value that's double the sales price. If you buy bonds, you should get many small ones rather than a few large ones. In that way, you could cash one in if you need a small amount of money while leaving the other funds invested.
Bonds sold today earn interest for 30 years with a guaranteed minimum rate of 4 percent. Those held for at least five years earn market rates, currently 4.78 percent. If that rate held steady, the bonds would double in 14 to 15 years, but the market rate changes every six months. If interest rates rise, the bonds would double faster. Because interest rates change, it is impossible to predict a final return.
Bank CDs pay less than U.S. Savings bonds. The principal of both bonds and bank CDs is protected by the government, and both earn interest. Your investment is protected, but you risk losing some return to the rate of inflation.
You have in mind a long-term investment for your retirement. A stock mutual fund, therefore, would offer you potential for growth and time to ride out intervening downturns in the stock market. You must live with the fact that the principal will fluctuate, that you are taking more risk with your money for potentially greater long-term rewards.
American Funds group is a reliable company with a good record. But there is no reason to pay $128.32 of your money for a fund with a sales fee. Look in personal finance magazines such as "Money" for information on funds with no sales fees, called "no-load funds." With the limited amount of money available to you, consider a balanced fund divided between stocks and bonds. This would be a conservative choice.
After making your investment, you should consider adding to the fund on a routine basis.
One benefit per person
Q: Your response to a recent question on Social Security for divorced spouses was that they were entitled to a 50 percent benefit from their former spouse.
What about the divorced spouse who has held a job for 10 years or 20 years?
The handbooks provided by the Social Security Administration and the Railroad Retirement Board both state that the former spouse can draw the 50 percent benefit only if his or her Social Security benefit is not larger. One cannot draw a benefit and a former spouse share.
With the Railroad Retirement benefit, some people consider Tier 2 part of the Social Security retirement benefit, which is not true. A divorced spouse is not eligible for this part unless it was set forth in the divorce settlement.
A: The answer was limited to the scope of the question about collecting under the work record of a divorced spouse. But you are right.
People, whether they are divorced, widowed or still married, can collect only the larger of two potential benefits. That's on their own work record or that of the spouse. They cannot collect under both.
To refinance or not
Q: I have a 15-year fixed rate loan on my home at an annual percentage rate of 11.74 percent.
The loan, which was made in 1987, was on a small two-bedroom home worth about $40,000. The payments are $273.67 per month and this does not include taxes or insurance. Seventy-two of the 180 payments have been made. The amount still financed is $23,125.
Would you advise refinancing at a lower interest rate and what would be the cost?
A: Dru Sexton, a loan officer at the Roanoke office of NationsBanc Mortgage Corp., said the savings in monthly payments through refinancing are not great when relatively small amounts of money are involved. This may be because refinancing costs carry greater weight in proportion to the total loan. That is true in your case.
NationsBanc was recently offering mortgage loans at 6.75 percent. Sexton estimated the costs of refinancing at $2,000, which is a significant amount.
This would bring your mortgage back to $25,000 if you financed the refinancing costs. The monthly payment, including escrows but not taxes or insurance, would be $287.06 for 10 years or $221.22 for 15 years.
If you paid the costs up front and financed only the $23,000, your monthly payments would be $265.53 for 10 years or $204.64 for 15 years. So, unless you extend the term of the loan back to the original 15 years, you would see very little change in your monthly payment.
Mag Poff 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.
by CNB