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Dear Dr. Don,
I had some health issues at 56 and had to go on
disability. I was living in Seattle at the time
and 18 months prior had built a new home. I knew
I could not keep up the payments on disability
and opted to move to Tennessee to lower my costs
of living. I was able to sell my home and make
$100,000 in 18 months.
In Tennessee, I bought a home for $155,000, half the price of my place in Seattle. I put $100,000
down and put $100,000 in a CD to pay the now $48,000 mortgage. I knew I would need a part-time job to supplement
the disability, which is about $870 a month.
I have reinvested the $100,000 every year. In September, it comes due again and rates are very low.
Because I am using the interest to pay my monthly mortgage, I am quite concerned. I have also found it hard to find
part-time work on a continuing basis. I will be 60 this month and very young people seem to be discriminating.
What I need to know is where to put that $100,000 come September to continue making the mortgage
payment.
-- Anxious Anna
Dear Anna,
I can understand why you're stressed. Trying to make enough in yield on a $100,000 CD investment to pay principal
and interest on a $48,000 mortgage loan isn't an easy task with today's CD rates.
While it isn't a great environment to consider this, one of the reasons why you're having trouble
making this work is that you're rolling over a one-year CD. Normally, extending the maturity of the CD will help
you pick up yield. You can find the highest yields in the country by using Bankrate's
"Compare rates" feature.
The highest yield posted on Bankrate
for a five-year CD currently has an annual percentage
yield, known as APY, of 4.3 percent, while a one-year
CD has an APY of 4.2 percent. The extra 0.1 percent
shouldn't be enough to entice you to lock in a
five-year rate.
Barring any prepayment penalty on the mortgage loan, I think you'd be much less anxious if you paid
off the mortgage and then started banking the monthly mortgage payment to rebuild your savings. It's not a perfect
solution, but it appears to be the best solution, given your current situation.
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