DEAR BRUCE: I am really confused; hopefully you can help. In simple terms that I can understand, what is the difference between an adjustable and a fixed rate? -- Linda, via email
DEAR LINDA: I assume you are talking about a fixed-rate mortgage versus an adjustable-rate mortgage. There are other circumstances when these terms can be used, but that would be the most common use.
Simply put, a fixed-rate mortgage is just what the words imply. The rate is fixed and doesn't vary whether the economy goes up or down. If it's a 5 percent mortgage, then you will pay 5 percent interest on the outstanding balance.
An adjustable-rate mortgage moves up or down according to a number of variables. In general, these mortgages start out at a lower rate, making your payments lower, and then slowly increase.
On balance, I would be far more comfortable with a fixed rate. You know where you are, and you know what you will be paying.
DEAR BRUCE: My problem is that I am trying to find a good place to put my money. I have an "extra" $20,000 in a CD, which as you know, is not paying me anything back. Where would you suggest we put some of the money? -- P.K., via email
DEAR P.K.: You asked the question that has been asked a thousand different ways, but it all comes down to the same thing. In today's world, there are few good places you can put money. CDs, money markets, checking and savings accounts, etc. are a waste. The only place you are going to get a decent chance of having a good return is in the stock market.
That doesn't mean the returns will be steady. It may be 10 percent this year, 3 percent next year, and that's not unusual. But over a period of time, say 10 or 15 years, the stock market should return an average of 6 percent to 8 percent, perhaps a little more.
In today's world, that's not bad. I believe that interest rates and returns will gradually increase.
(Send questions to firstname.lastname@example.org. Questions of general interest will be answered in future columns. Owing to the volume of mail, personal replies cannot be provided.)
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