Pay off mortgage vs pay for renovation

[Anonymous]

We recently inherited about 500K. We can either pay off our mortgage (20 years left, 2.8 rate) or fully fund a much-needed renovation. WWYD?

If we pay off the mortgage, we would be able to save another $40K toward the renovation while we go through the planning stage. We'd still probably need a $400K HELOC but could pay it off in less than 8 years. (We have priced out the reno at $350 but I know things always crop up, plus we'd need to live somewhere else for a few months at least.)

If we pay for the renovation, obviously nothing else in our financial lives changes - we'd just continue to have the mortgage for the next 2 decades.

We considered just moving to a newer house but we really like our neighborhood and all the houses we could afford still need substantial work, and we'd need the inheritance to keep the mortgage reasonable with today's rates.

We are well-funded on retirement and college savings. No other debt. This should just be a simple math question but the idea of paying off the mortgage and being completely debt-free sooner is very attractive.

[Anonymous]

Easy one. Fully fund the renovation. You will never get money as cheap as your mortgage again.

[Anonymous]

I have a paid off mortgage but this seems like a no brainer to fund the renovation.

[Anonymous]

Think of it this way: You've already got a loan that will cover the renovation. It's your mortgage.

Or, you could pay the 2.8% mortgage off and then get a HELOC at 8 or 9 %. . .

[Anonymous]

Payjng off a sub 3% mortgage early is close to the stupidest thing you can do. It is only topped in stupidity by throwing 350k at renovations.

[Anonymous]

Anonymous wrote:Payjng off a sub 3% mortgage early is close to the stupidest thing you can do. It is only topped in stupidity by throwing 350k at renovations.

The renovations aren’t stupid if this is your forever home and won’t move until retirement.

[Anonymous]

Anonymous wrote:Easy one. Fully fund the renovation. You will never get money as cheap as your mortgage again.

This. Leverage your low mortgage rate. Also the renovation will only continue to increase in price.

[Anonymous]

Why rush to spend it? OP, when you add on, you will have more tax to pay and more stuff to accumulate and more utility bills to pay. Why not invest in something different?

We considered an extension of our DMV home but bought an investment property in a different area. Taxes are low, value has outperformed DC market, and renting it pays our expenses. We may one day retire there.

Tell us more also. How old are you? Income? How many kids and ages? More coming?

Are you sure you have enough for college? Are you aware one year at an elite college averages between $80k to $100k per year?

[Anonymous]

I guess I would run the actual math. I would assume you'd save money in the long run paying for reno with the money (because a HELOC would be higher interest) but I haven't crunched the numbers.

[Anonymous]

Anonymous wrote:Easy one. Fully fund the renovation. You will never get money as cheap as your mortgage again.

+1

[Anonymous]

You might want to consider easing into your renovation if that's possible. $350K is a lot all at once (and will probably be something that goes over-budget). You'll end up locking up that windfall in your house. Flexibility (money you control) is just so important and mentally freeing.

[Anonymous]

Anonymous wrote:Easy one. Fully fund the renovation. You will never get money as cheap as your mortgage again.

+1

[Anonymous]

Whatever you do with the money, do not pay down the mortgage.

[Anonymous]

Pay off mortgage. No question. You want a remodel, you don't need it.

[Anonymous]

How is this even a question? You are talking about paying off a loan at 2.8 percent to take on a HELOC at, what, 6 percent? Isn’t the answer obvious to anyone not innumerate?