Recasting a mortgage

Q: What does it mean to recast a mortgage? — C.F., Horace, North Dakota

A:

Recasting, also called reamortizing, can be handy if you suddenly have a large lump sum you’d like to pay toward your mortgage. It involves your lender recalculating and lowering your monthly payments due to the smaller loan balance. Recasting generally doesn’t cost too much, and it will save you in overall interest paid, but it doesn’t change your interest rate or the terms of the loan.

Depending on the circumstances, you might also consider refinancing your loan — having your loan paid off with a new loan. This does cost more, but it might get you a lower interest rate, a shorter term and/or lower monthly payments. It can also save you a lot in interest.

You might also just apply your lump sum against your current balance, and do nothing else. Doing so will get your loan paid off sooner.

Q: Are growth stocks or value stocks better? — H.T., Waverly, Nebraska

A:

Neither is necessarily better, but certain kinds of investors might favor one or the other. Younger or more risk-tolerant investors with long time horizons might want growth stocks — shares of companies whose revenue and/or earnings are increasing at a relatively rapid rate; these could (but might not) grow phenomenally over many years. More risk-averse investors might prefer value stocks, which seem undervalued and thus present lower risk.

Note, though, that the terms aren’t mutually exclusive. Ideally, you could find and invest in rapidly growing stocks with market values significantly below what they seem to be worth. That scenario offers the best of both worlds.

Should you buy or rent your home?

So, you’re planning to get a new home. Should you buy one or rent one? Well, it depends.

Do you know the neighborhood well? If not, get familiar with it before buying, lest you end up with unpleasant surprises, such as a nearby landfill or frequent ambulance sirens. Renting for a while can help you learn about an area.

How long do you plan to live in the home? If it won’t be long, renting can be better. Buying involves closing costs, which you can’t recoup when you sell. Also, homes may lose value over a short period; that’s less likely over a long one.

Are you able to maintain your home? Owners must do so, and maintenance takes time and money — especially if pipes burst or a new roof is needed. Renters can expect landlords to handle such challenges.

But buying a home offers benefits, too. For starters, your monthly housing payments can help you build equity that can be tapped later; down the road, you may end up selling your home for a profit. (Note that renters can build wealth without real estate by investing in the stock market over a long period.)

Buying a home can also deliver some modest tax breaks, such as deductions for mortgage interest and/or property taxes paid. Read up on the rules for these.

Finally, buying a home can give you stability. Renters may be forced to move if their landlord wants them out. And fixedrate mortgages mean that monthly loan payments will remain constant.