If you were to inherit $2 million, would you pay off the remaining $150k of your very low interest mortgage?

[Anonymous]

What do you mean "low interest"? Our mortgage is under 3% and no -- would not pay it off.

[Anonymous]

Yes, we didn't inherit and paid off our mortgage. Its freeing.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:No, I would not pay off my low interest mortgage.

Our “very low” mortgage is at 2.25%. It doesn’t make any sense to pay that off when I can get 3% in a regular savings account.

+1 We have the money in cash to pay off our mortgage right now, but why? The rate is 2.75%, and our money is sitting in a MMA earning closer to 4%.

There are these things called taxes. Assuming you're at least in the 32% bracket (24% federal and 8% MD) and are among the 90%+ of Americans who don't itemize deductions, you'd actually be earning a higher return by paying off your mortgage than keeping it in a MM at 4%.

Also, you've got it in cash for now, but paying off your mortgage is also a protection against making a bad move in the stock market (e.g., you pile into NVDA because of the hype and it drops 70% during the next correction). Why play games with the roof over your head for *at most* a few basis points in return??[b]

I agree with you but reality is majority of people in this area Don’t have a 2.75 mortgage rate.

Can you pls explain it with the taxes savings ? I thought that having interest deduction actually reduces your taxable income.

[Anonymous]

Anonymous wrote:Yes, we didn't inherit and paid off our mortgage. Its freeing.

For me, having more net assets is freeing.

[Anonymous]

Why is it so freeing? Our mortgage expenses isn’t that much.

Like OP, we expect a significant inheritance in the next few years plus have $2 M net worth on our own. We just lowered our 401K contribution to be the company matched amount at around 4% vs the max contribution possible which will increase our monthly CF since our income isn’t that high and college is funded by a 529. I guess paying off the mortgage would free up more cash flow, but we like having the savings in case we need it for something big.

[Anonymous]

My HYSA currently returns 4.15% interest so literally throwing money away to pay off my 3% mortgage (and that’s before even factoring the mortgage deduction on taxes) would be the opposite of stress reducing.

[Anonymous]

We inherited that same amount and have not paid off our mortgage which is 350k at 2.375 interest. There is no point to doing so. We did pay off a car loan though. We invested most of the rest.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:No, I would not pay off my low interest mortgage.

Our “very low” mortgage is at 2.25%. It doesn’t make any sense to pay that off when I can get 3% in a regular savings account.

+1 We have the money in cash to pay off our mortgage right now, but why? The rate is 2.75%, and our money is sitting in a MMA earning closer to 4%.

There are these things called taxes. Assuming you're at least in the 32% bracket (24% federal and 8% MD) and are among the 90%+ of Americans who don't itemize deductions, you'd actually be earning a higher return by paying off your mortgage than keeping it in a MM at 4%.

Also, you've got it in cash for now, but paying off your mortgage is also a protection against making a bad move in the stock market (e.g., you pile into NVDA because of the hype and it drops 70% during the next correction). Why play games with the roof over your head for *at most* a few basis points in return??[b]

True that most people don't itemize, but I bet most people who inherit $2m do. And if I inherited that amount I would definitely be itemizing that year because a) I already do and b) I'd be setting up a donor-advised fund with several year's worth of donations. I wouldn't pay off a mortgage--easy to put $150k in a hysa or cd and always have it for the mortgage if needed but also let it bring in some interest.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:No, I would not pay off my low interest mortgage.

Our “very low” mortgage is at 2.25%. It doesn’t make any sense to pay that off when I can get 3% in a regular savings account.

+1 We have the money in cash to pay off our mortgage right now, but why? The rate is 2.75%, and our money is sitting in a MMA earning closer to 4%.

There are these things called taxes. Assuming you're at least in the 32% bracket (24% federal and 8% MD) and are among the 90%+ of Americans who don't itemize deductions, you'd actually be earning a higher return by paying off your mortgage than keeping it in a MM at 4%.

Also, you've got it in cash for now, but paying off your mortgage is also a protection against making a bad move in the stock market (e.g., you pile into NVDA because of the hype and it drops 70% during the next correction). Why play games with the roof over your head for *at most* a few basis points in return??[b]

I agree with you but reality is majority of people in this area Don’t have a 2.75 mortgage rate.

Can you pls explain it with the taxes savings ? I thought that having interest deduction actually reduces your taxable income.

mortgage interest deduction reduces your taxable income, but only if you itemize which most people can't (because what they'd itemize is less than the standard deduction and it wouldn't make sense). And the deduction isn't a great deal--if you pay $10,000 in mortgage interest and are in a 24% tax bracket, your taxes would go down by $2400...but you still paid $10,000 in interest, so it would have been better to avoid paying the interest if you could.

Of course, if you paid $10,000 in mortgage interest and made more than that by investing the money you otherwise would have put towards your mortgage, it might be worthwhile. To determine if you're actually making more, though, you have to factor in what PP was saying--that interest income is taxed. So if you make $10,000 in interest income and you're in that same 24% tax bracket, you really only made $7600.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:No, I would not pay off my low interest mortgage.

Our “very low” mortgage is at 2.25%. It doesn’t make any sense to pay that off when I can get 3% in a regular savings account.

+1 We have the money in cash to pay off our mortgage right now, but why? The rate is 2.75%, and our money is sitting in a MMA earning closer to 4%.

There are these things called taxes. Assuming you're at least in the 32% bracket (24% federal and 8% MD) and are among the 90%+ of Americans who don't itemize deductions, you'd actually be earning a higher return by paying off your mortgage than keeping it in a MM at 4%.

Also, you've got it in cash for now, but paying off your mortgage is also a protection against making a bad move in the stock market (e.g., you pile into NVDA because of the hype and it drops 70% during the next correction). Why play games with the roof over your head for *at most* a few basis points in return??[b]

I agree with you but reality is majority of people in this area Don’t have a 2.75 mortgage rate.

Can you pls explain it with the taxes savings ? I thought that having interest deduction actually reduces your taxable income.

mortgage interest deduction reduces your taxable income, but only if you itemize which most people can't (because what they'd itemize is less than the standard deduction and it wouldn't make sense). And the deduction isn't a great deal--if you pay $10,000 in mortgage interest and are in a 24% tax bracket, your taxes would go down by $2400...but you still paid $10,000 in interest, so it would have been better to avoid paying the interest if you could.

Of course, if you paid $10,000 in mortgage interest and made more than that by investing the money you otherwise would have put towards your mortgage, it might be worthwhile. To determine if you're actually making more, though, you have to factor in what PP was saying--that interest income is taxed. So if you make $10,000 in interest income and you're in that same 24% tax bracket, you really only made $7600.

I itemize my mortgage is way higher but yes, thank you for clarifying

[Anonymous]

$2 mill of inherited money that is essentially free money? Yes, I'd pay off the remaining 150k of a mortgage. I'd still have $1.85 mill to invest.

I'm not one of those people that feel the need to squeeze every single 0.0001% of every single penny out of life. That's not meant as a criticism of those that do, I'm just not that way.

[Anonymous]

Yes

[Anonymous]

Anonymous wrote:Yes, we didn't inherit and paid off our mortgage. Its freeing.

Exactly.

[Anonymous]

What was the original term (years) of your mortgage and how many years have you been paying? If you are in the early mortgage years, you will save $$$ in interest. If you are at the last few years of your mortgage, you have already paid most of the interest. Use online calculators to figure this out. You also need to calculate how much you can make in investments of this $150K.

[Anonymous]

That’s my plan. Then install a geothermal heat pump.