Inheritance

[wall*e2008]

I have a question for all of you pushing the mortgage payoff and calling not doing it ridiculous. Do you use a financial planner and have you ever discussed any of this with them? I do and I have and he as well as most I've talked to say keep the mortgage and invest in your future retirement NOW! You will in the end have a heck of a lot more put away than if you do it the way most of you are suggesting. It's short term thinking and will cost a lot of interest income over the years.

Most people I know retiring now or looking at it in the next few years who can actually afford it have mortgages and invested heavily early on and consistently in their retirement accounts. Those that I know that paid off their mortgages early cannot afford to retire early because they cannot live on their retirement annuity alone because instead of putting money away for retirement and using the time value of money they paid off debt.

Yes we have a financial planner and ours recommended getting rid of the mortgage as long as we would not spend that money. You do know that at certain incomes you lose some of your write-off.

Why pay 100 to somebody to get 25 back from the IRS?

I would not enter retirement with a mortgage. I will not have one and will have saved enough to fund my retirement.

 

[zazu1971]

My dad lost his 6 year battle with cancer in January. One grandma was buried 8 weeks to the day of my dad. My mom appears to have up to a week left. One remaining grandpa (who lost his wife of 56 years in March and will lose his oldest daughter very soon) is in pretty poor health himself. I wouldn't be surprised if he didn't give up and not make it through the end of the year.

I knew at the start of 2008, it wasn't going to be a very good year.

I'm so sorry to hear that. My deepest condolences to you and yours for a difficult year.

 

[mjantz]

We will probably be looking at something similar in the next few years. In our case we've decided to put it in the kids college funds because that's what the family member would want. We did discuss paying off debt but I like the idea that my relative, in this way, will help pay for my kids college education, which is something he would be very happy about.
I do wish I could get some sort of table that would tell me if it would be better to pay off debt & put that money that was going towards the debt in the college fund or put the money in the college fund & take the extra 4-5 years to pay off the debt. It is a pickle.

 

[dcfromva]

Let's say you inherited enough money to eliminate payment of a mortgage, student loans, credit cards, and your car. Do you take that money and pay off those items or do you invest in the market thinking that there are bigger gains to be made in the market while it's down? Your interest rates on the mortgage is 5.75%, student loans are at 4.25%, credit cards at 9.9%, and car is at 6.25%

Obviously, you have considerations in losing out on things like your mortgage and student loan interest, which would be an annual deduction of over $15k. On the other hand, you could significantly increase your pre-tax 401k contribution at work to a much higher level because you can significantly reduce your take home pay.

I'm 34, married, 3 kids that are 5 and under, and see both sides. However, it would relieve a big burden to take away $3k/month away in expenses to go to these items. What do you do?

What would I do?

I would pay everything off--this is a sure thing. You will be saving the interest and you've bought your family some security.

I would set some money aside for emergency expenses in a relatively liquid account--you should have at least 6 months set aside for emergencies.

Anything left over after that, I would invest.

Then, with the 3k/month that has been freed up, I would increase funding on the 401K to max out contributions. Assuming you and your spouse are eligible, fund Roth IRA's ($416.00 per month X2 accounts) and what was left over after that would be split among the 3-529 accounts. At the end of the year, you will have invested 36K (plus--assuming that you would be adding to the previous funding levels).

With the wild swings in the market, I think it is pretty difficult to time the market. I think you are better off to get into the market with dollar cost averaging.

 

[DVC Sadie]

Financial planners will ALWAYS recommend that you invest with them. Paying off your mortgage will NEVER benefit a financial planner.

I have to disagree.

That is why people need an independent CFP that is not linked to any firm or business.

Our CFP told us to pay off our mortgage (on the home we reside) with in the first 10 years to eliminate as much interest as possible.

Everyone's financial picture is different and no two families are exactly the same so the perfect financial plan for one family would not be the best plan for others.

 

[christa112]

No brainer here!! Pay off the bills and then with the extra money you have from working you invest and start saving.

 

[dsanner106]

Actually,
Colleges don't look for debt, they look at income only with mortgages and other debt providing no factor. I worked in this area and have a college fresh-soph and went through this with her. We have 2 mortgages, tons of expenses etc, but qualify for nothing. The income it the only factor they consider. We tried showing our debt expense, but there is no place to list it on applications for aid, and they don't want to hear about it when you phone them. As far as the tax benefits of a mortgage, consider this. If you pay 1000.00 a month on a mortgage, and are in the 25% tax bracket, your max return is 250.00 per month. Your mother would have paid out 1000.00 every month with 250 of it being an interest free loan to the govt. that you got back in a year, and 750.00 of it being lost entirely. Perhaps in the past the mortgage issue was a factor in school loans, grants etc. but not anymore. IF that was the case, taking out a mortgage to qualify would be an easy thing to do. If she saved the 1000 a month til you were 18, that is 48,000.00 and had the extra 1000 a month while you were in college, that is another 48000.00 for 96000.00 total. That is if she stuffed it in a mattress and did not earn compound interest. I think no mortgage is better than mortgage, in almost any circumstance.

D

My father died unexpectedly when I was 14, the oldest of 4 kids. There was enough insurance to pay the mortgage, and a bit more, so mom paid off the mortgate. In exchange, she kissed goodbye the tax deductions she would have had from it, which made a difference in a couple of years when we were living on her income. Unrecognized by us at the time, she also kissed goodbye any chance we had at college financial aid, as the first thing the granting agencies said she'd need to do, before we'd qualify for grants or loans, was to take a 2nd mortgage on the house- if you cannot show debt, you cannot qualify for funding. We were not living high off the hog, for sure, and all ended up taking loans to pay for college (no way mom's income qualified her for a mortgage!). Now, if you have A LOT of money and are fully funding college funds, that's not a consideration probably. However, paying off the mortgage, while tempting, isn't necessarily what one might want to do first.

If it were me, I'd pay off the credit card debt and the car loans, then pay my mortgage up to 20%, so I could drop the monthly PMI (and maybe get rid of the escrows for taxes and insurance). Oh yeah, and the school loans; 9% interest over 10 years adds up to almost 50% of the original amount borrowed! Then I'd invest the rest, maybe after a trip to you-know-where (akl savannah view!!).

PS- If you cannot figure out what to do with all of it, I just pre-paid heating oil for the winter in Maine, on my credit card! PM me here for where to send the check!! (yes, i'm joking...)

 

[dvcgirl]

Financial planners will ALWAYS recommend that you invest with them. Paying off your mortgage will NEVER benefit a financial planner.

Bingo. Well, it certainly won't benefit a planner who is actively managing your portfolio for a percentage.

Others have a good point though. If you do pay off all of your debt you need to be disciplined enough to invest what used to be your debt payments.

 

[Luv Bunnies]

We consulted a financial planner several years ago about this. Basically, if we were to liquidate a stock account, we could pay off our mortgage. She advised against it saying the tax advantage related to the mortgage is not worth giving up (the stock account is not with her company so she had nothing to gain in terms of commissions if we sold it off or not). My husband agreed with her. I still don't see the advantage because we're paying $800+ per month in interest (money down the drain to me) and only $300+ toward the principle. Then again, we would take a huge tax hit if we sell the stock all at once so that's another thing to consider.

If you have the money available, you might consider paying down the mortage partially and refinancing to reduce the monthly payment. Then you can invest the rest for the long-term. I would keep at least some of it in an account-type that's easily accessible. That way you know it's there in an emergency.