DEAR BOB: My wife and I thought home loan interest rates would drop to 6 percent so we were waiting to refinance. Instead, rates are headed up. Our interest rate is 8.25 percent.

We've talked with a mortgage broker, who recommends getting a "no point" mortgage because refinance points must be amortized over the life of the mortgage. Such loans, however, have a slightly higher interest rate. As I write to you, the broker can get us an "easy qualifier" 7.5 percent mortgage with no fees. Should we take it?--Clark S.

DEAR CLARK: Grab that mortgage. Don't chase the lowest interest rate. Look for quality service instead. It's not too late to refinance. You will save only three-fourths of 1 percent on your mortgage interest rate, but over the life of your mortgage, that is worth thousands of dollars in interest.

Your mortgage broker gave you sound advice to take no cost or no point refinance mortgage. However, if you were buying a house, I would advise paying one or two points for a loan fee to reduce the interest rate because the fee for those points is fully tax-deductible on a home-acquisition mortgage.

If mortgage interest rates should plummet, as one mortgage broker told me they will by September, you can refinance again with another "no cost" mortgage. Just be sure your new mortgage does not contain a prepayment penalty.

DEAR BOB: We're moving to New York and have decided to live in Manhattan. We've looked at condos and co-op apartments. The coops seem like better bargains. As we are not familiar with co-ops, would you advise buying one?--Gil W.

DEAR GIL: A co-op apartment's buyer must be approved by the board of directors. This can be a major drawback because some boards require buyers to bear their financial souls and to answer personal questions. Condos do not have this disadvantage. For this reason, most buyers prefer condos, which tends to boost market values and make resales easier.

Another co-op drawback is the financing difficulty. Co-ops do not have individual mortgages, the way condos do., In New York, however, most banks will finance co-ops. Before buying, please read "The Co-op Bible" by Sylvia Shapiro (St. Martin's/Griffin, $18.95 paper), available from bookstores and libraries.

DEAR BOB: My wife and I have owned our house 13 years. There isn't one area of our house that we haven't remodeled ourselves, without a contractor. Needless to say, we greatly increased the market value.

With the skills acquired, we want to invest in fixer-upper houses to repair for rent or resale. How can we buy for 10 percent down and avoid expensive private mortgage insurance? Should we use our primary residence as mortgage collateral? We've noticed many two-story houses in our area that have been converted into upstairs and downstairs apartments. Is this a good idea?--David B.

DEAR DAVID: There are many ways to buy with 10 percent down and avoid PMI. One method is to pay 10 percent down, get a new 75 percent or 80 percent first mortgage, and ask the seller to carry back a second mortgage to fill the 10 percent or 15 percent finance gap. Sellers whose homes have been on the market for several months are often eager to do so, especially retirees who need extra income.

An alternative is to pay 10 percent down, take over an existing assumable mortgage and give the seller a second mortgage for the balance.

You don't have to use your principal residence as loan security, although doing so by refinancing will reduce your overall interest cost.

Forget about converting a fixer-upper house into two units. That requires city approval and red tape. An excellent new book on realty investing is "Profitable Real Estate Investing," by Roger Woodson (Dearborn Kaplan Publishing Co., $19.95), available at bookstores and libraries.

DEAR BOB: I need to sell my house because I am 76, widowed and have been diagnosed with what will eventually become a debilitating disease. My youngest son is interested in buying my house and I want to sell to him.

What is the best way to determine a fair selling price since there will be no sales commission? Should I hire an appraiser? I realize the terms of the sale enter into the transaction.--Clint McB.

DEAR CLINT: Hiring a professional appraiser who is familiar with home values in your neighborhood is an excellent way to determine your residence's fair market value. Just to be fair to your son, perhaps you should hire one appraiser, and your son should hire another so you can average the appraised values.

If you can carry back the mortgage to finance your son's purchase, that might be advantageous for both parties. You will have an excellent mortgage income investment, and your son will have easy financing so he can afford to pay you top dollar.

However, if you need a cash sale and your son needs to obtain a mortgage, the lender's appraiser will usually set a conservative valuation that you can then use as the sales price.

DEAR BOB: How can I recover the defaulting buyer's deposit on my home sale? Although I won an arbitration (the buyer didn't show up), the agent holding the buyer's deposit says it's not binding on her, and she refuses to give me the deposit. I hired a real estate attorney, who assured me I had a case for damages, but the limitation-of-damages clause in the sales contract bars me from collecting more than the buyer's deposit. What recourse do I have?--William O.

DEAR WILLIAM: Because you won the arbitration, your next recourse is to present the arbitrator's decision to the appropriate local court for confirmation. You will then have a judgment that can be enforced against the agent holding the buyer's deposit. A lawyer will probably be needed to accomplish this.

Another alternative is to ask the agent holding the deposit, since she refuses to recognize the arbitrator's decision, to interplead the deposit into court and let the judge decide. In view of the arbitrator's decision in your favor, it would be difficult for a judge not to order the buyer's deposit turned over to you.

Your situation shows how difficult it can be for a home seller to get a forfeited deposit unless the buyer releases that money to you.

DEAR BOB: My husband and I are 72. We live in a triplex that has a $128,000 mortgage at 6.875 percent interest, which we'll pay off in 2014. We have about $250,000 invested in mutual funds, which we could use to pay off this mortgage now. My husband doesn't think we should pay it off, but I think we should because it would give us $1,000 extra per month to live on. What is your advice?--Mary P.

DEAR MARY: If you pay off the mortgage, you just invested your money at 6.875 percent. I hope your mutual funds are doing far better than that. And paying off the mortgage may leave you property rich and cash poor. Unless you badly need the extra $1,000 per month, I recommend you refrain from paying off that bargain-interest-rate mortgage.

DEAR BOB: My friend and I want to buy a two-family duplex and convert it into a condominium, with each of us owning our own unit. Is this possible? What government agency controls condominiums?--Melody P.

DEAR MELODY: It is possible to convert a two-family duplex into a condominium with two owners each owning their own unit. However, the costs can be considerable for a survey, legal services and approval by the local government agency. An easier solution is to buy the duplex with your friend as a tenancy-in-common with a simple agreement, prepared by a real estate lawyer.

DEAR BOB: When I see home prices appreciating rapidly and hear about the profits my friends have made on their homes, I want to buy a modest house. But I know my employer will transfer me within a few years. What should I do?--Carla W.

DEAR CARLA: Although the market values of houses are appreciating rapidly because of a booming economy and low mortgage interest rates, there is no guarantee that the appreciation will continue at such a rapid pace. Real estate values usually go in seven-year cycles.

If you buy a house today expecting to sell it within two or three years, you will be lucky to break even. Normal annual appreciation in market value is 3 percent to 5 percent, but costs of selling a house are typically 10 percent of the sales price. Unless you plan to stay in the house at least five years, I do not recommend buying unless you can risk taking a net loss on the transaction.

DEAR BOB: In the past, you've recommended that "cash-challenged" people buy houses on a lease-option with a rent credit of at least 25 percent. I can't find any lease-options in the area where I want to rent a house and eventually buy. How can I find a lease-option house?--Margo C.

DEAR MARGO: There aren't many residence lease-options available now because the home sales market is so strong in most cities. However, you can create your own lease-option.

Read the "Houses for Rent" or "Condos for Rent" newspaper classified ads. Inspect the ones that interest you. When you find one you like, ask the landlord to will lease it to you with an option to buy. Many landlords want to sell eventually, so your lease-option offer might be welcome.

To tempt the landlord, offer $3,000 to $5,000 nonrefundable option consideration money. Since the landlord was expecting a modest security deposit, your offer may be hard to reject.

You could also place a classified ad under "Homes Wanted to Rent," such as "Executive seeks 3 BR, 2 BA house on five-year lease with option to purchase." Include your phone number and run that ad for a week or two. You won't get many phone calls, but all you need is one or two.

DEAR BOB: My wife and I own a condo in a nice building. We have lived here about four years. The condo above ours is for sale. Do you think we should buy it as a rental?--Henry H.

DEAR HENRY: Rental condos are usually not great investments. The reasons are the rent usually isn't high enough to pay the mortgage, taxes and monthly condo fees, and condos do not appreciate as rapidly in market value as do similarly priced single-family houses.

However, buying the condo above yours would give you the opportunity to control that unit, especially if the soundproofing isn't good. By the way, poor soundproofing is the number one condo owner's complaint. Only because of this special situation should you consider buying that condo as a rental, knowing it probably won't be a great investment.

DEAR BOB: My wife and I got preapproved for a mortgage, but we're having trouble buying a house. We lost two houses to other buyers. Our agent says we should simplify our purchase offers so we have a better chance.

She persuaded us not to include a contingency clause for a professional inspection; however, we're reluctant to remove the mortgage contingency clause, just in case the house doesn't appraise for the price we offer. Would it be dangerous not to include a mortgage contingency clause in our next offer?--Joanne R.

DEAR JOANNE: Yes, it's dangerous not to make your purchase offer contingent upon obtaining the mortgage you need to buy a house. What would you do, for example, if you offered $200,000 for a house and your offer was accepted, but the house then appraised for only $180,000? Could you pay the extra $20,000?

Buying a house in today's booming marketplace can be risky if the buyer isn't protected by mortgage and professional inspection contingency clauses. Only you can decide whether you should buy without those protections.

DEAR BOB: I plan to sell my house in August and want to save the sales commission. Do you have a checklist I should follow for selling without a real estate agent?

--Agnes C.

DEAR AGNES: No, because I do not recommend that you sell a house without the help of a professional sales agent. Selling a house has gotten complicated, and most sellers need professional help to make all the required disclosures, avoid legal problems and receive top dollar.

Before you sell a house on your own, interview at least three successful real estate agents who sell houses in your vicinity. They won't mind because they know most do-it-yourself sellers fail and then you'll probably list your house with one of the agents interviewed.

The agents will explain the marketing work required to sell your house and give you free comparative market analysis forms showing your house's market value.

They also will explain the powerful sales benefits of the multiple-listing service and Internet listings. After you have this information, you can decide whether you will be able to sell without an agent.

DEAR BOB: My husband died in February. Our home's monthly mortgage payment of $2,345 is more than I can afford. The attorney handling my husband's estate says I can claim up to $500,000 tax-free profit if I sell the house in 1999. She says if I wait until 2000, I will only get a $250,000 tax exemption. I don't want to sell for another year or two. Since we have owned our house since 1973, the net profit will be at least $350,000. What should I do?--Rosie H.

DEAR ROSIE: If you inherited your husband's half of the house that means you get a new, stepped-up adjusted cost basis. Did your attorney tell you about that? This is proving to be one of the best times ever to sell homes. Buyers are out in droves, rushing to buy homes before interest rates go up.

If you sell your house now, today might be a great time to sell without owing any capital gains tax. However, you need to consult a tax adviser because it appears you will owe no tax after considering your new stepped-up basis for the house.

DEAR BOB: I was fascinated when you recommended that a retired widower carry back the mortgage on his home sale for extra retirement income. That is my situation. I'm moving to a church-sponsored retirement home, but I could sure use some extra income. If I carry back the mortgage on my home sale, how much interest can I get?--Dolores R.

DEAR DOLORES: First or second mortgages can provide excellent retirement income. Although I'm not retired, I hold several such mortgages, and I look forward to the monthly checks I receive from my buyers (oops, I mean borrowers).

If I get lucky, my borrowers will default, and I'll foreclose and resell the houses for a second profit. However, that rarely happens, so don't count on such a windfall profit.

In today's market, you can get at least 8 percent interest if you carry back a first mortgage for your home buyer. A second mortgage should command at least 8.5 percent interest. Your real estate agent can advise you on local mortgage conditions, bearing in mind that home buyers are willing to pay a premium for easy seller financing.

DEAR BOB: The home market in which I want to buy is "super-hot." Last weekend I made a purchase offer on a house and there were six other offers. The seller accepted an offer that was $14,000 above her asking price. But I'm not giving up. When I find another house that I want to buy, how long should my offer be valid?--Jonathan P.

DEAR JONATHAN: Your situation is not unusual. The home market is excellent in virtually every town, thanks primarily to a booming economy and low mortgage interest rates.

Your offer should be valid for only 24 hours. That is plenty of time for your agent to present the offer to the seller. If you make the offer valid for a longer time period, the seller can then "shop" your offer to see if another buyer will pay more for the house.

Readers with questions should write Robert J. Bruss at P.O. Box 280038, San Francisco, Calif. 94128.{copy} 1999, Tribune Media Services Inc.