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The mortgage broker's radio ad caught my attention with its grandiose promise: I could pay off a 30-year mortgage in seven years without increasing my monthly payment. I decided to check it out.
First I went to the broker's Web site, which made no mention of this deal. Instead, it touted a plan to reduce monthly payments by taking out a 40-year mortgage, quite the opposite of what I had in mind. A couple of phone calls later, I finally found out the details of the seven-year repayment plan. Unfortunately, they were more complicated than I had hoped:
First, I would have to refinance my existing mortgage with a larger, interest-only loan, cashing out the equity in my house. Then I would have to use this equity to make down payments on two or three rental properties. Then I would sit back and collect rent, which would cover all the rental properties' costs, no problem. Seven stress-free years later, I would sell the properties and thanks to continuing fast appreciation in housing prices, I would net enough to pay off the mortgage on my house.
Nothing could possibly go wrong with that plan, could it?
Sadly, there is no free lunch. You can't get rich stuffing envelopes at home, you can't lose weight while you shower and you can't pay off your mortgage 20 years early without increasing your monthly payment or taking a whole lot of extra risk. Yes, some version of the plan might work, but I wouldn't want to risk the equity in my home to find out.
Deals that sound too good to be true almost always are - and you might as well develop the internal radar to detect them. Some are merely misleading, but others are outright fraud.
Unfortunately, you can't count on someone doing the screening for you. Although many media outlets turn down ads they suspect are fraudulent, the mere fact that advertising has been allowed on the air or in the newspaper does not mean that someone has checked out its legitimacy. That's up to you.
There are laws against consumer fraud, but enforcement rarely comes until there are victims, which you want to avoid becoming. If you already are a fraud victim, you can complain to the Federal Trade Commission by calling toll-free 1-877-382-4357 or using the complaint form on the Internet at www.ftc.gov.)
Q. I have a fixed annuity, currently earning 3 percent, that matures in August. I do not take withdrawals and the total has grown to more than $120,000. Would it be wise to split it into two annuities or to pay the deferred tax and place it in a safer CD? Every statement I get warns me that annuities are not insured by the FDIC or other government agency.
The Florida Life and Health Insurance Guaranty Association covers up to $100,000 of the present value of an annuity if the insurance company is declared insolvent. Companies are not allowed to advertise this fact in selling annuities. If the insurance company that issued your annuity is in strong financial condition, your decision should be based on income tax and investment considerations rather than safety.
It might be beneficial for you to withdraw some of the money if you are planning to leave this annuity to your children and you are in a lower tax bracket than they are. Get a tax preparer or financial adviser to run the numbers for you before making a decision.
Q. Which is wiser: a will or a trust? I understand that with a will you have to go to court and with a trust you do not have to and it costs less. Am I misinformed?
The answer depends on your situation, particularly the kind of assets you have, how much they are worth and what you want to do with them. You are correct that a will passes through probate and a trust does not. However, even if you have a trust, you should have a will to convey assets that are not in the trust.
I recommend that you talk to a lawyer experienced in estate planning about what is best for you. The cost will depend on the complexity of your plan, the lawyer you choose and whether you hire other professionals, such as a trustee for your trust.
Helen Huntley writes about investing and markets for the Times. If you have a question about investments or personal finance, send it to On Money. We'll try to answer those we think are of greatest reader interest. All questions must be submitted in writing, but readers' names will not be published. Send questions to huntley@sptimes.com or Helen Huntley, Times, P.O. Box 1121, St. Petersburg, FL 33731.