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Having second thoughts on new mortgage

Q: I recently refinanced our mortgage. The interest rate on the new loan readjusts every six months and has a three-year prepayment penalty. I'm now concerned about those terms. Should I try to refinance into a 30-year fixed-rate loan?
G.A., via e-mail

A: A three-year prepayment penalty leaves Atlanta certified financial planner Jack Harmon skeptical about the lender you've chosen. But before refinancing again, he says you should determine how steep this penalty is, and what index is used to regulate your loan rate and how volatile it is.

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Mr. Harmon says refinancing again, so quickly, is probably not warranted from any fear of a runaway climb in interest rates over the next year or so. But if you're convinced you need to redo your home loan, he suggests that you consider a "7-23" mortgage. This 30-year loan carries a flat rate for seven years and then steps up to the prevailing market rate and stays flat for its remaining 23 years.

Q: Can you put money into an IRA above your yearly limit and simply not take the tax break?
b.M., via e-mail

A: If you overcontribute to an IRA - intentionally or otherwise - the excess funds plus earnings must be withdrawn, Harmon says. This has to take place on or before the filing of your federal tax return for the tax year in question.

If you miss that deadline, Harmon says, report the excess contribution on IRS Form 5329. In general, a 6 percent cumulative excise tax is assessed on the excess contribution plus earnings until the money is withdrawn.


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