Don't take money out of a CD to pay down mortgage

DEAR BRUCE: My husband and I are working on paying off our mortgage. Our goal is September 2011. We are putting everything we have in our savings toward the mortgage. We have decided to live on a very strict budget to meet this goal. We don't charge on credit cards and try to be very frugal. The only other debt we have is a $7,500 car loan. We also have a CD that will mature next year. Should we put this toward the mortgage to pay off our house even quicker?

As of today, we owe $24,000 on our house. Please share your thoughts. — Reader, via email

DEAR READER: You guys are doing very well. I don't think, however, that you should be paying down your house the way you are, and I would not take the money out of a CD to continue to pay it quicker. Could the market go down demonstrably? Absolutely. You might wish to wait until there seems to be a bottom and the prices are increasing. Will the market recover to its previous highs? I have no way of knowing. Will the market recover substantially, and will good, solid American companies still be here paying dividends and growing? Without question.

DEAR BRUCE: A financial planner has advised me and my wife to take out a reverse mortgage on our home, which we own free and clear.

They recommend we use the funds to purchase a $350,000 life insurance policy on my wife. They claim that our son would inherit the $350,000 with no tax liability. We could then invest the remaining money and have more income. We have approximately $700,000 in cash assets. We do not feel we need this additional income and would like to know whether getting a reverse mortgage is a good investment strategy for our situation. — George V., via email

DEAR GEORGE: Maybe I've missed something, but it seems your financial adviser is an insurance salesman. Why in the world would you pay the high interest and fees, which are perfectly proper on a reverse mortgage and are desirable for many people, to produce a life insurance policy? Unless your assets are considerably larger then you're describing, properly set up, there would be no federal income tax. Until you know that, the only guy who benefits, as I see it, is the insurance salesman selling a rather substantial life insurance policy. I would be very happy to listen to any arguments beyond those that you have mentioned here. I can see no advantage to anyone but the insurance guy.

Send your questions to: Smart Money, P.O. Box 2095, Elfers, FL 34680. E-mail to: Questions of general interest will be answered in future columns. Owing to the volume of mail, personal replies cannot be provided.

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