Q: Two years ago we took out a five-year, interest-only mortgage on a $207,000 home. The interest rate is 5.25 percent. We have been paying $500 a month on the principal, which is now $202,562. The home was recently appraised at $227,000. With rising interest rates, should we consider refinancing? Or should we continue on this course and refinance at the end of the five years?

A: If we knew what home mortgage interest rates would be three years from now, that would be an easy question to answer. But we don't.

The best any of us can do is look at the options we face and pick the one that seems best. So let's examine your options.

• Refinance now. If you refinance now to a fixed-rate mortgage, you face closing costs and fees plus a higher interest rate.

• Hold your current mortgage. If you wait, you will save refinancing costs plus about 1 percent a year on the interest rate. That's about another $2,000 a year. In addition, you'll pay off about $18,000 of principal over the next three years.

• Move. The other option is that you might move in the next three years. If that is a possibility, refinancing would be foolish. If I were in your shoes, I'd hold.

Q: I am 52 years old with 32.5 years with a large corporation. They are changing the pension system. Until December of this year, I have a choice between an annuity of $1,800 a month or a lump sum of $360,000.

After December, the annuity is the only thing available. I have savings that total about $450,000.

My wife will work another 10 years, and she makes $78,000. Should I take the lump sum and look for work, or should I stay?

A: A corporation with a defined-benefit pension plan can't "arbitrarily" reduce or eliminate it. They can "freeze" the plan and stop the accrual of new benefits.

If a full and unemotional reassessment of your employer still ends with a low level of trust, however, you would be better off working elsewhere, particularly if you are eager to be "repotted." (The change will be easier if you can find another job that pays as well elsewhere, if your wife's job is secure and pays more than yours, and her job can provide your health-care coverage — a lot of ifs.)

Your $810,000 ($360,000 lump sum plus $450,000 current savings) will provide a sustainable annual income of about $32,000, assuming a withdrawal rate of 4 percent.

You would have to earn something over $35,000 to have the equivalent income from work.

Pension funding, as measured by the Ryan Labs indexes, has improved this year, but pending legislation is likely to make defined-benefit pensions even less attractive to corporations than they are now.

Questions about personal finance and investments may be sent to Scott Burns at The Dallas Morning News, P.O. Box 655237, Dallas, TX 75265; by fax at 214-977-8776; or by e-mail at scott@scottburns.com. Questions of general interest will be answered in future columns.

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