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Hi guys and gals,

Here is the deal, i will most likely get a substantial amount of inheritance money. i know i will first pay of my high interest credit cards and afterwards i am discussing with my wife to see if pay off my house would be a good idea.

Here is my situation:

I live in Houston. I'm 40 with a house that has about $169k in mortgage and i have a so so job that is pulling in about $3.5k/month. We just got a baby daughter who is about to turn 1 and i know there will be expenses concerning her therefore,i would rather keep a nice stash of emergency funds.

The good thing is i can pay off the credit card debts PLUS the mortgage and still have about $30k left. Now my question to you guys is should i even pay of my mortgage or should i pay $100k and refinance?

I understand that if i buy the house out right i'm kinda stuck LOL and i know for a fact that the schools were rezoned last year to a high school that my neighbors are not happy about so of course this is a factor as well.

What do you guys think?

Thanks in advance!

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The answer to the question is much simpler than interest rates, mortgages, etc. What would your grandmother have wanted... (more)

SCSURFER (Dec. 18, 2012 @ 12:12p) |

If ever there was a person who got the proverbial "I gotta rock" in his Charlie Brown Trick or Treat bag, it's YOU. What... (more)

yankees4life (Dec. 18, 2012 @ 1:01p) |

I think it sounds more like he's elderly, has money, and has relatives who want to know what they're going to get. He's ... (more)

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I'm interested in this as well. I have enough funds to pay off all or most of my ~250K remaining mortgage without tapping into my retirement accounts.

My mortgage is my only "debt" and I never liked the idea of having one, so always thinking I should just pay it off. However the tax write offs seem to be a good reason not to do it - but I haven't really done all the math. I don't know if the tax write-offs really over power the interest over time...

So, to add to the OP - at what point is it a good idea to pay off (or even pay down) an existing mortgage?

Hi Ben thanks for contributing!

I forgot to add that my Mortgage rate is at 4.65% i know it's not great but it sure beats 6.75% that i was paying when i was living in Dallas LOL.

If you decide to pay it off, you may wish to do some research into umbrella insurance as you will no longer have a major bank (with a mortgaged asset to protect) to help you out in the event of a lawsuit.

I hope you don't take this the wrong way, but if you're the type of person that is unable to live within your means (running up credit card debt), then take the money is use it to pay off your debts. You don't want to be in a situation 5 years from now where you can't account for $200k+. You still need to learn to live within your means though, even if you do pay off all your debts.

OverMachoGrande said:   If you decide to pay it off, you may wish to do some research into umbrella insurance as you will no longer have a major bank (with a mortgaged asset to protect) to help you out in the event of a lawsuit.

It would be your homeowner's insurance company that helped you out with that, not the bank. This would only apply in the event that someone was hurt on your property though.

nasheedb said:   I hope you don't take this the wrong way, but if you're the type of person that is unable to live within your means (running up credit card debt), then take the money is use it to pay off your debts. You don't want to be in a situation 5 years from now where you can't account for $200k+. You still need to learn to live within your means though, even if you do pay off all your debts.

Thanks for the advice and i am not taking anything the wrong way. The reason i have my credit card debt at all was a failed business that i couldn't quite recover. Lesson learned and i moved on.

BenH said:   I don't know if the tax write-offs really over power the interest over time...

The formulae are pretty simple:

If you itemize on your tax return: [average rate the money is earning] - [mortgage interest rate x (1 - marginal tax rate)]
If you don't itemize on your tax return: [average rate the money is earning] - [mortgage interest rate]

If the result is less than zero, the mortgage is costing you. Even if it is greater than zero, the risk of your current investments may or may not be worth it.

Celeritas said:   

I understand that if i buy the house out right i'm kinda stuck LOL

If you have a mortgage, you've already bought the house.....

If it is excess money, go for it. Its nice to not to have major debt. Your income that will no longer go towards housing will accumulate, hopefully, and you will then be asking where best to use those funds.

Assuming two things that you have not covered yet:
1) you don't like in a major hurricane/earthquake/tornado zone, and
2) your current mortgage interest rate is greater than 3% or so.

Pay off your mortgage. If you need to tap into the equity later on, get a HELOC.

One thing before you pay off the mortgage is to make sure your state/county doesn't have a mortgage tax credit that some areas have. It can be pretty hefty in some areas so you might pay it down but not off. At least far enough down to refinance for a lower rate and shorter term.

imbatman said:   Assuming two things that you have not covered yet:
1) you don't like in a major hurricane/earthquake/tornado zone, and
2) your current mortgage interest rate is greater than 3% or so.

Pay off your mortgage. If you need to tap into the equity later on, get a HELOC.


how does the natural disaster play into things?

At your income levels and now with a dependent child, your tax benefit on home mortgage interest is minimal, if anything.

If you have not accumulated any savings as of now, I would pay down the mortgage to the point where, if you keep the same payments going, you will pay it down to zero in say five years. That will force you into saving the remainder of your inheritance. The remainder should be put in cash equivalent savings for emergencies, and conservative investments which can provide you with a measure of security. Then, in five years, you will have no debt and substantial savings.

If you think you can discipline yourself to pay off the mortgage entirely, and save what you would have paid to be at the same financial position in five years, for example, ok then pay it all off at once.

Pay it off and live nicely with that $30k plus your $3500/month. Max out your 401k after all is paid off, start a college fund for your kid, etc. You'll be VERY comfortable living on $2000/month with no mortgage/rent ($2000 +/- after maxing out 401k).

If it was me..

Liquidity is a nice to have. Once you put it in your house it will be hard to get out. Just because you have a lot liquid now, don't be in a rush to see what you can spend it on.
1) Refinance to a 15 year. With interest rates averaging 2.8%, it will be difficult to ever borrow $169k again for that cheap.
2) Max out your retirement accounts for both your wife and yourself.
3) Sock away enough for 18 months in an emergency fund.
4) Contribute a large amount to a 529 plan for your child's college. Saving now will allow it to grow for the next 17 years.
5) With the money left over, contribute more in principal per month if you want, but hopefully in the next 15 years you find a way to average better than a 2.5ish% rate on your money per year.

Pay off the house then save a portion of the old mortgage payment for your kids college fund. Cash in the account is a difficult thing to maintain. You will see a nice car and rationalize how you can pay cash for it and still have X-amount left. I paid off my credit debt years ago and still see temptation that would easily wipe out my nest-egg. Tie up your money so that you can't easily access it. It will stop you from doing something stupid with it later. Cash is a tuff thing to control, and you will invent ways to get at it. After paid off, leave the credit cards at home, only use one of them and keep a self imposed limit on it. When you hit that limit recognize the fact that you are on the verge of getting out of hand.

Iexpedite said:    I paid off my credit debt years ago and still see temptation that would easily wipe out my nest-egg.

Was it for 2 girls at the same time?

cr3s said:   Iexpedite said:    I paid off my credit debt years ago and still see temptation that would easily wipe out my nest-egg.

Was it for 2 girls at the same time?


..and a cup?

1)do you have adequate retirement savings?

The general recommendation given by most real financial advisors is that you NOT pay off your house, and use the money to invest, since theoretically investing has a higher yield. All that is contingent upon you investing it well, which can be hit or miss in reality. Some 15 year loans are just incredibly low, so maybe look at refinancing. There are many people who won't invest the money well, and for them paying off the house is the better choice. No one will fault you for doing either, and the decision really hinges on the details of if you itemize or not (with no mortgage loan interest you likely won't be able to itemize) and what interest the money can earn in stocks/ira/etc and what your mortgage rate is etc. The formulas are mentioned above.

My fear is that if you don't have good retirement savings and have CC debt (I see your explanation) that if you pay off your house you might take that extra money you were using for your mortgage and blow it. Whatever you do, you need to keep saving that 'mortgage' money- either using it to pay off the house slowly and save your inheritance, or pay off you house with the inheritance and use the saved 'mortgage' money to save. save save save.

so who died?

whodini said:   so who died?

My grandmother.

Thanks for all the great advices.

As for retirement i have IRAs and Texas Teachers Retirement and i do max out my contributions.

Celeritas said:   

What do you guys think?



what do I think?

I think I am sick and tired of you people coming here to brag about the death of your loved ones in a thinly veiled question about what to do with the money

in some cases they are even dead yet --- in others rigamortis hasn't set in ---- you people have no respect

nasheedb said:   OverMachoGrande said:   If you decide to pay it off, you may wish to do some research into umbrella insurance as you will no longer have a major bank (with a mortgaged asset to protect) to help you out in the event of a lawsuit.

It would be your homeowner's insurance company that helped you out with that, not the bank. This would only apply in the event that someone was hurt on your property though.

Not that the bank would help you out directly, but having a mortgaged home makes you a less attractive target than if you have it paid off. At least that's what I've been told.

germanpope said:   Celeritas said:   

What do you guys think?



what do I think?

I think I am sick and tired of you people coming here to brag about the death of your loved ones in a thinly veiled question about what to do with the money

in some cases they are even dead yet --- in others rigamortis hasn't set in ---- you people have no respect

Shut. The. Hell. Up.

Rewdog said:   If it was me..

Liquidity is a nice to have. Once you put it in your house it will be hard to get out. Just because you have a lot liquid now, don't be in a rush to see what you can spend it on.
1) Refinance to a 15 year. With interest rates averaging 2.8%, it will be difficult to ever borrow $169k again for that cheap.
2) Max out your retirement accounts for both your wife and yourself.
3) Sock away enough for 18 months in an emergency fund.
4) Contribute a large amount to a 529 plan for your child's college. Saving now will allow it to grow for the next 17 years.
5) With the money left over, contribute more in principal per month if you want, but hopefully in the next 15 years you find a way to average better than a 2.5ish% rate on your money per year.

This is the one I'd pick. About #4 though if this means prepay for 4-5 years of college I agree. If not there are university's that you pay a fraction of what 4-5 years college costs now. Then your child is guaranteed this when she's of age. I think some cover dorms, books & cafeteria. Education will go up an insane amount in the next 15-20 years.

zapjb said:   Rewdog said:   If it was me..

Liquidity is a nice to have. Once you put it in your house it will be hard to get out. Just because you have a lot liquid now, don't be in a rush to see what you can spend it on.
1) Refinance to a 15 year. With interest rates averaging 2.8%, it will be difficult to ever borrow $169k again for that cheap.
2) Max out your retirement accounts for both your wife and yourself.
3) Sock away enough for 18 months in an emergency fund.
4) Contribute a large amount to a 529 plan for your child's college. Saving now will allow it to grow for the next 17 years.
5) With the money left over, contribute more in principal per month if you want, but hopefully in the next 15 years you find a way to average better than a 2.5ish% rate on your money per year.

This is the one I'd pick. About #4 though if this means prepay for 4-5 years of college I agree. If not there are university's that you pay a fraction of what 4-5 years college costs now. Then your child is guaranteed this when she's of age. I think some cover dorms, books & cafeteria. Education will go up an insane amount in the next 15-20 years.


can i borrow your crysral ball when you are done with it?

scubasteve said:   imbatman said:   Assuming two things that you have not covered yet:
1) you don't like in a major hurricane/earthquake/tornado zone, and
2) your current mortgage interest rate is greater than 3% or so.

Pay off your mortgage. If you need to tap into the equity later on, get a HELOC.


how does the natural disaster play into things?


I think of it as an alternate insurance policy.
Say, worst case scenario, your house gets destroyed by an event that is not covered by insurance.
If you have paid it all off, you have lost 100% of the equity of the home.

If you have a mortgage on the house, maybe you realize it makes financial sense to cut your losses (strategic default on mortgage). You would be out the equity you have in your house, but not the equity in the entirety of your house.

Some people will have issues with this strategy, but it is legal, and can make financial sense.

germanpope said:   Celeritas said:   

What do you guys think?



what do I think?

I think I am sick and tired of you people coming here to brag about the death of your loved ones in a thinly veiled question about what to do with the money

in some cases they are even dead yet --- in others rigamortis hasn't set in ---- you people have no respect


Elderly relatives die; some families are honest about that and everyone knows what their expected estate distribution will be.

I know about what my grandmother has left. I know exactly what my parents have. I hope they all live long enough to spend it all so that I don't inherit squat. (And my grandma is well on her way!)

However, there may come a day when it's sufficiently obvious that I will stand to inherit. If you have an expected inheritance, I think it's much more respectful to carefully plan and consider what you're going to do with the windfall that they worked hard during their lives to earn. People who plan ahead are more likely to make thoughtful decisions in stressful circumstances than people who don't. (I've talked with my parents and know my dad doesn't give a crap about his casket and would be fine if we dumped him in a landfill when he was gone, bought a keg of beer, and gave the funeral money to charity; we won't feel guilty when we are grieving and be taken in by fine mahogany with engraving to "be respectful".) Most of these posters want to make smart and responsible choices with money. That's the point of this forum, and that's usually what their deceased loved one would want them to do with it. The only thread on here that was objectively distasteful was the guy wanting to go ask dying, not-so-lucid grandpa how much he was going to get.

I would suggest a 5/1 ARM for a refinance. You get the benefit of the low rate(below 2.8%) and the low payment. Unless you are really bad at investing, you won't have to worry about the rate adjusting in 5 years, because you could always pay it off at that point.

There is nothing stressful about someone giving you money whether they are dead or alive. ... And people don't need special advice that depends on how they got the money .... Perhaps I am being overly critical .... But I definitely see a component of these inheritance announcements as a need to tell the world what they just got. .... My personal opinion is that someone's legacy needs to be treated with the utmost respect as may represent a lifetime of hardship, sacrifice, and work --- it certainly shouldn't be paraded about in a bunch of look what I got threads

Rewdog said:   If it was me..

Liquidity is a nice to have. Once you put it in your house it will be hard to get out. Just because you have a lot liquid now, don't be in a rush to see what you can spend it on.
1) Refinance to a 15 year. With interest rates averaging 2.8%, it will be difficult to ever borrow $169k again for that cheap.
2) Max out your retirement accounts for both your wife and yourself.
3) Sock away enough for 18 months in an emergency fund.
4) Contribute a large amount to a 529 plan for your child's college. Saving now will allow it to grow for the next 17 years.
5) With the money left over, contribute more in principal per month if you want, but hopefully in the next 15 years you find a way to average better than a 2.5ish% rate on your money per year.
I agree. Especially with #1. You can get an even lower rate than this when you have a large inheritance socked away. There are mortgage holders getting near 2% rates on 15 year mortgages.

I am a fan of keeping a mortgage, since the interest paid is tax deductible, and since it is so cheap now. It is also a hedge against inflation. This changes though it you don't itemize your deductions and you will have enough left over to do the other wise things when you have a wind fall. 1. max out company retirement - if good and fees are fair and two max your Roth. Maybe treat treat yourself a bit with the windfall but otherwise forget it and retire early.

cr3s said:   Iexpedite said:    I paid off my credit debt years ago and still see temptation that would easily wipe out my nest-egg.

Was it for 2 girls at the same time?


http://www.youtube.com/watch?v=A939QRRSNV4

The answer to the question is much simpler than interest rates, mortgages, etc. What would your grandmother have wanted you to do with it? If this money was the result of her being frugal and paying her debt, I think you have your answer. This was a gift from her, honor her accordingly.

germanpope said:   Celeritas said:   

What do you guys think?



what do I think?

I think I am sick and tired of you people coming here to brag about the death of your loved ones in a thinly veiled question about what to do with the money

in some cases they are even dead yet --- in others rigamortis hasn't set in ---- you people have no respect


If ever there was a person who got the proverbial "I gotta rock" in his Charlie Brown Trick or Treat bag, it's YOU. What happened to you? Did someone not leave you anything after they passed?? If you don't like the thread, hit BACK and find another thread. nobody wants to read your thread-crapping.

yankees4life said:   germanpope said:   Celeritas said:   
What do you guys think?
What do I think?
I think I am sick and tired of you people coming here to brag about the death of your loved ones in a thinly veiled question about what to do with the money ...

If ever there was a person who got the proverbial "I gotta rock" in his Charlie Brown Trick or Treat bag, it's YOU. What happened to you? Did someone not leave you anything after they passed?? If you don't like the thread, hit BACK and find another thread. nobody wants to read your thread-crapping.

I think it sounds more like he's elderly, has money, and has relatives who want to know what they're going to get. He's projecting that onto other's families. Some people actually have good relationships with their grandparents, and he can't appreciate that the gp's may have made a loving bequest to remember them by. And that people who have never had a large amount of money available may not know what to do with it when they get it.

Ahem. I would refi the mortgage down to 15 year as suggested, although the tax breaks don't seem tremendous since income is fairly low, and are only useful if your itemize deductions. Pay off the credit cards, as interest is surely higher and no tax breaks on that.

You can only avoid the mortgage liability if you are in a non-recourse state. If you are at substantial risk for hurricane/tornado/earthquake loss, consider buying flood/(tornado??)/earthquake insurance, plus possible umbrella policy.

Sounds like you're doing a good job with retirement planning. Rainy day fund definitely. 529 plan--heard bad things about returns and high fees; shop for a good one. Invest the rest; wait for a market dip (who doesn't think there's one coming?), and buy a broad based Exchange Traded Fund, from Vanguard/Fidelity/Schwab. Maybe a dividend fund if you want a stream of income too. Good luck!



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