Sinking CD yields may not pay mortgage

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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.

To ask a question of Dr. Don, go to the ”
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