So, get after that mortgage, pay off other debt, adjust 401(k)

Staying Ahead

January 05, 1998|By JANE BRYANT QUINN | JANE BRYANT QUINN,Washington Post Writers Group

HERE ARE my three New Year's resolutions:

1. Lose 10 pounds.

2. Clean up my appallingly messy office.

3. Do all the money stuff I've been meaning to get to for months.

Speaking from long experience, I can't vouch for success with Nos. 1 and 2. But I'm a shoo-in for No. 3. Early in each year, my husband and I set aside some time to discuss money matters that we haven't attended to, and ask ourselves what we ought to be doing next.

Our list will differ from yours. But here are three places you might want to look in 1998:

Your mortgage. If you haven't already refinanced, get the ball rolling now. Current national averages, according to HSH Associates in Butler, N.J.: 5.9 percent for a one-year adjustable-rate loan, 7 percent for a 15-year fixed-rate loan and 7.4 percent for a 30-year fixed.

These rates assume that you'll pay one point up front -- that is, 1 percent of the loan in cash. No-point loans might cost an extra 0.25 percent or 0.5 percent.

For loans priced below average, check the ads in your newspaper, call a mortgage broker or try the Web site, www.hsh.com.

Rates might drop even further, due to a slowing economy. Or they might not. Because you can't predict, you should refinance whenever the costs of refinancing can be recouped in lower mortgage payments over a reasonable period of time.

Talk to your own lender first. You can often recast your present loan for a low fee, without a full-scale refinancing.

My personal goal is to prepay my mortgage. The cheapest way to live in retirement is in a paid-up home, and the fastest way to get there is to accelerate payments many years ahead of time.

Some investors think I'm nuts. "Put your extra money in stocks," they say. "By the time you retire, you'll have more than enough to pay off your mortgage loan."

Maybe. But what if the market goes flat for 17 years, the way it did from 1966 to 1983? That's not a prediction, but for the narrow purpose of homeownership, I don't care to run the risk.

If I keep prepaying my mortgage at my current rate, I'll own my home in six years -- guaranteed -- no matter where the market goes.

Your debts. Slow holiday sales this year suggest that everyone's credit cards were already stuffed to the gills. If you pay the jTC minimum each month, it will take 30 years to erase the debt you're carrying now, let alone any debt you add.

So pay more than the minimum. Your return on investment equals the rate on your credit card. If you prepay an 18 percent debt, you are getting an 18 percent return on your money, risk-free. There's no better yield in the market today.

There's no better resolution to make in '98 than to make it the year you minimize other spending and get rid of the balances on your credit cards. Then cancel all but two of them.

Your investments. Reassess and simplify them.

If all your investments are in a company 401(k) plan, ask yourself whether you're too exposed to its stock. Your company may contribute stock to your plan. If so, diversify into something else. The company's stock might be hot now, but things could change.

Long-term 401(k)s should hold both U.S. and international stock-owning mutual funds.

If you own more than six or seven mutual funds outside your 401 (k) or in self-directed retirement plans, you've overdone it.

You get excellent diversification from an index fund that follows the Standard and Poor's 500-stock average, two small company funds (one that buys growth stocks; one that buys value stocks), diversified international fund and a bond fund.

Consider paring down to that.

Pub Date: 1/05/98

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