Paying off a mortgage early Q I have a $37,000, 30-year mortgage at 11 percent with no prepayment penalties. I would like to pay it off in 15 years. What is the best way to pay off this mortgage early? Should I make larger payments each month, one large payment a year, or invest the extra funds?

You can pay off a 30-year mortgage with a regular schedule of principal prepayments. By making your regular monthly payment, plus one principal prepayment each month, the mortgage will be paid off in 15 years.

You will have to notify the bank that holds your mortgage that you intend to do this. Also, you should write separate checks for the regular payment and the prepayment, and write on the back of the prepayment check that it is for this purpose, to be sure you are properly credited for it.

The banker may discourage you from doing this, saying, for example, that you will lose the income tax deduction for mortgage interest sooner this way. But for the average American, who is well below the 50 percent maximum tax bracket, this is not a problem. If you are in the 30 percent bracket, for instance, you are not able to deduct 70 percent of your interest payments.

On the other hand, you may find that investing the extra money instead of prepaying your mortgage puts you further ahead financially, depending on what kind of return you can get, particularly with a cheaper mortgage.

For more information on making prepayments, see ''How to Cut Your Mortgage in Half,'' by Fred A. Anderson. If you can't find the $9.95 book in a bookstore, you can get a copy by sending $11 to the publisher, Skills Improvement, PO Box 595, Aurora, Colo. 80040.

Investing in stock indexes

Q Could you discuss investing in the stock indexes, such as Standard & Poor's? It seems a good vehicle for someone with modest retirement income, with time to watch daily movements, to supplement income.

You are talking about stock index futures, which have been trading for about two years. Unlike commodity futures, there is no delivery of a physical item, like a boxcar load of grain. Here, the investor is buying a contract that represents expectations about the future performance of an index - the S&P 500, for example. You can also buy contracts for the S&P 100, the Dow Jones industrial average, and other indexes. Contracts can be purchased on margin, which let individuals put down only 50 percent of the purchase price.

Most investors who buy these contracts are using them to ''hedge'' other investments. If you think the stock market is heading down, for example, but you don't want to sell your stocks now, you can agree to sell S&P 500 index contracts in an amount corresponding to your stock position. So if you lose money on stocks, you gain on index futures. Of course, this works only if your portfolio resembles the S&P 500, and most individuals do not have such diversity and weighting. This is most useful to very large investors, such as pension funds, which cannot easily liquidate their portfolios.

Index futures should be considered highly speculative and used only by wealthy investors with several thousand dollars to ''play'' with that they don't mind losing.

Investing or gambling?

Q What is the difference between investing, speculating, and gambling? Is it the market vehicle or the attitude of the investor? I have heard two people describe similar transactions, one using the vocabulary of the businessman, the other the lingo of the race track.

The investment discussed in the previous answer is a good example of why some investors have trouble with the difference between investing and gambling. It could be said that stock index futures let investors ''bet'' which way the market will go, but if these futures are used properly, they provide a useful protection against losses in a stock portfolio. So if the investor is using them as part of an overall investment strategy, it is not gambling.

The same statement about attitude could be applied to several other investment vehicles, including commodity, currency, and precious-metals futures. Even investing in stocks could be a form of gambling, if you're just buying them because of a hunch - not backed up by any hard information - about the direction of the market.

Send your questions to: Personal Finance Q&A, The Christian Science Monitor, One Norway Street, Boston, Mass. 02115. Short, to-the-point questions of general interest are most appreciated.

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