Why a low rate loan does not always lead to savings

Q: A bank is offering a balance transfer of any loan at 3.9 percent interest until it is paid in full. I have a home equity line of credit for $19,000 from another bank, for which I pay about 6 percent interest. I have passed the early payoff penalty period on this loan, so I won't owe anything extra by making the switch. I'd appreciate your opinion on this transfer.
M.J., via e-mail

A: At first blush, replacing 6 percent money with 3.9 percent money seems a no-brainer. But consider income taxes, since interest paid on a home-equity loan is deductible (as long as you itemize), which isn't the case with a bank loan.

Oklahoma City financial planner Troy E. Jones calculates that moving to the lower rate loan and paying it off over five years would save you $1,059. That's with no taxes. If you pay 28 percent in federal and state taxes, the savings falls to $457, or about $7.60 a month. In the 15 percent tax bracket, you save $640, while a 43 percent tax rate actually leaves you in the hole by $211. So such a switch makes sense if you are in a lower tax bracket.

If you think you want to do this, read all the fine print in the bank offer. As Mr. Jones says, they hired $500-an-hour lawyers to write the agreement and at the amount of savings you may achieve, you couldn't afford to argue with the bank much if something comes up.

Q: I worked for my husband during the 28 years of our marriage but was not paid. Consequently, if I retire now at age 62, my benefits would be extremely low. Should I collect on my deceased husband's Social Security now, meanwhile working to raise the amount of my own benefits when I retire later?
L.G., via e-mail

A: Consider flip-flopping that plan to claim whatever benefits are due you now and then your husband's at 65, says Evelyn Morton, a Social Security expert with AARP.

Since Social Security benefits build up over a long period of time, going to work now would not greatly enhance the eventual payout from your retirement account. But it would put some money in your purse, and at age 65 you'd be able to claim the entire benefit due you as a qualifying survivor.

A potential drawback: Social Security payouts typically are scaled back for people in your age group who still work. Check out the retirement system's website, www.ssa.gov, which has a calculator for benefits.

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