Is Refinancing the Best Option?

Q: DEAR BOB: I am a 51-year-old widow of eight years with three children, 9, 11 and 15. I earn about $3,000 a month, and my children receive $2,100 in Social Security benefits. I have owned my home for six years and have a 30-year, fixed-rate mortgage at 5.375 percent. My monthly payment is $1,279, including $67 in private mortgage insurance and $217 for escrowed property taxes and insurance.

I have $16,000 in credit card debt at 8 to 10 percent interest, mostly for home improvements and medical expenses, and $125,000 in an IRA. My FICO score is 779. I recently met with a financial adviser, who recommended that I refinance with a 20-year, fixed-rate, interest-only mortgage at 6.75 percent. My new payment would be $1,317 including tax and insurance escrow but no PMI. But I would go from having $70,000 equity to almost no equity. He anticipates that I will refinance again in three to five years. I would walk out with about $25,000 cash to pay off my credit cards and buy annuities. I would use the $600 saved in credit card debt each month for emergency cash reserves. Is this interest-only mortgage a good idea? -- Phyllis K.

A: DEAR PHYLLIS: You appear to be doing a great job of managing your household on a limited budget. I don't like the idea of you taking a bad interest-only mortgage that will wipe out your equity and not build future home equity from monthly mortgage payments.

Unless you have a Federal Housing Administration mortgage, you can easily get rid of that $67 monthly PMI premium if your loan-to-value ratio is below 80 percent. Just contact your lender and explain that you have at least 20 percent home equity. You'll have to pay for a new appraisal, but that will be money well spent to save $804 annually.

There's no advantage for you to refinance from 5.375 percent to 6.75 percent interest. If you want to pay off your credit card debt, get a home-equity credit line. With your superb FICO score, your bank should eagerly approve such a credit line at the prime rate or lower.

DEAR BOB: Several months ago, you gave a top rating to a new book by a mortgage insider who revealed mortgage lending's dirty tricks. What is the name of that book? -- Peggy P.

DEAR PEGGY: In the past few months, I reviewed several excellent new books by mortgage insiders. The most recent was "Mortgage Rip-Offs and Money Savers," by Carolyn Warren. Another superb recent book is "Mortgage Confidential," by mortgage broker David Reed. Both are widely available.

DEAR BOB: About two years ago, my boyfriend and I bought a two-bedroom condominium unit. Before we closed the purchase, our professional inspector told us there was a problem with moisture and rain around a bedroom window. The condo management company sent out a contractor, who agreed that the problem was structural and that the homeowners association should pay for repairs. So we went ahead with our purchase.

Despite our repeated pleas and letters, the window still leaks. We finally contacted the president of the homeowners association, who had no knowledge of the problem. The leak is now so serious that we can't use that bedroom. Our son is now 2 years old, and we had been hoping that would become his bedroom. What should we do? -- Erica W.

DEAR ERICA: I would be much more aggressive. The homeowners association clearly has a duty to repair that leaky window.

Write a polite letter to the homeowners association president, with a copy to the professional management company, stating that you want this long-standing problem fixed within 30 days.

If you don't get satisfactory action by then, hire a local attorney who is familiar with condominium law. This problem is affecting the enjoyment of your condo, its market value and the marketability of your unit. You've been patient far too long.