Home News ‘I’m in a very lucky position’: I will receive a $300,000 inheritance. Should I pay off my mortgage or invest the money?

‘I’m in a very lucky position’: I will receive a $300,000 inheritance. Should I pay off my mortgage or invest the money?

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I currently owe $300,000 on a home with a 2.5% 30 year mortgage. I have exhausted my retirement accounts (IRA and 401(k)) and am aiming to retire within 10 years. You will receive an inheritance of at least $300,000 so you can pay off the house.

I am in a very lucky position. Should I pay it off or invest the money?


dear landlord

Paying off your mortgage early, especially at the 2.5% interest rate, can save you considerable interest. Millions of homeowners would kill at that rate.

Of course, luck is often involved. Let’s take a moment. Currently, the interest rate on a 30-year mortgage is over 5.5% for him. The consumer price index rose 8.5% year-on-year in July, while the much-watched ‘core’ measure of inflation (excluding volatile food and energy) hovered at 5.9%. With an interest rate of 2.5%, you’re already making money just by living.

As colleague Aarti Swaminathan put it: “While the prices of cars, gas, electricity, and other expenses are rising, their homeowners will find that inflation will also increase the value of their homes. Yet their mortgage rates are not inflation-adjusted.” , remains the same, which means they are paying the same interest rate as before inflation.”

overpayment A few If possible, interest payments are higher, especially early in the life of the loan. Depending on the terms of the mortgage, the amount of overpayment may be limited (10% in some cases) and there may be penalties for overpayment. In your case it might actually be a good thing.

With an interest rate of 2.5% and inflation of 8.5%, you’re already making money just by living.

Assuming a healthy 401(k) and IRA, a 6% tax-efficient retirement savings account offsets a 2.5% interest rate, saving you a lot of money. Talk to your financial advisor to make sure you can afford to live comfortably, pay off your mortgage, or downsize.

Speaking of financial advisors, Larry Pong, a financial planner based in Redwood City, Calif., says many people with excess cash face a dilemma, with no right or wrong answer. increase. he agrees with me Rather than paying off his mortgage and actively investing in inheritances, he makes a combination. ”

“Since I have 10 years left in my retirement, I would recommend investing in a moderate mix of 50/50 to 60/40 for stocks and bonds when it comes to inheritance. “This means that there is no difference in individual cash flow and it is possible to pay off the loan in 10 years.”

Continue to make the most of those accounts. “I am assuming you are over 50, so you can put $7,000 into an IRA and $26,000 into a 401(k). I have yet to meet anyone who hoards too much,” Pong added. “I highly recommend that you continue to make the most of your retirement plan so that your retirement is more secure.”

Pon outlines the pros and cons of investing and paying off a mortgage. His strengths are: 1. No more mortgage payments. 2. Debt repayment is a risk-free investment. “At least it saves him $1,200 a month, which means he can put that payment toward savings instead of paying the mortgage.” 3. “This will make retirement safer.” increase.”

Cons: 1. Mortgage rates will probably never be this low. 2. If he invests $300,000 instead of paying off his mortgage, he will take the investment risk. 3. “Even in the current market, we expect a return on investment of 2.5% or more. This is not risk-free or guaranteed, but you can take some risk and get a bigger return.” You can.”

What if I I will pay off the loan I hate debt We spend the first part of our lives desperately trying to get a mortgage and the rest worrying about paying it off. is. Mortgages give you something to look out for besides just another “M” word.

Still, life would be sweeter if the mortgage was paid off. Until the next obsession comes along.

Learn how to shake up your financial routine with Money Festival’s Best New Ideas in New York on September 21st and September 22nd. Join Carrie Schwab, Chairman of the Charles Schwab Foundation.

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