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

[Anonymous]

If I were still working, no. If I were 65+ and retiring, then yes, I’d pay it off.

[Anonymous]

Hell no. You need that interest deduction

[Anonymous]

I would but that's because I hate debt hanging over my head. And I feel like in the scheme of things, you won't miss $150k of $2 million but you will enjoy not having a mortgage.

[Anonymous]

To those of you that wouldn't pay off the mortgage, how many times in life do you spend money on yourself that you don't need to spend, like on an expensive vacation, jewelry or a new car? Those expenses are more wasteful than paying off a mortgage.

[Anonymous]

Anonymous wrote:To those of you that wouldn't pay off the mortgage, how many times in life do you spend money on yourself that you don't need to spend, like on an expensive vacation, jewelry or a new car? Those expenses are more wasteful than paying off a mortgage.

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I wouldn’t pay off our low rate mortgage and we live very well. Several trips a year, eat out at nice restaurants often. We are not into jewelry and our cars are older, because that’s what we prefer. We can buy new car if/when we need.

It may be freeing for some to pay off their mortgage, and there is nothing wrong with that, but for us the math doesn’t make sense. We max out retirement and invest in low fee S&P index funds and that have done well. The money is better served being invested…for us.

[Anonymous]

Only OP can tell if it makes sense mathematically. Make a chart and figure out at which return level on investments his benefits preparing the mortgage outweigh interest deduction

[Anonymous]

I’m totally planning on paying off my 2.875% mortgage when I inherit. I’m down to around $120k on the balance, I recasted so my payments are under $600 a month. But I always pay $1500 a month toward it because I really hate debt. It’s my only debt, college was already paid for and I have about ten years before I retire.

I’m also frugal, so I’d plan on taking the $1500 a month I put toward my mortgage and investing it.

I know logic says I can take the $120k I’d be using to pay off the mortgage, invest it and use the earnings to pay my monthly bill. But there truly is a psychological aspect to not having a mortgage. I already own land and a weekend place outright, cost of ownership of both is under $10k a year total.

[Anonymous]

No. Doesn’t make sense

[Anonymous]

Hard to say without knowing other information like how much you have saved in total and your age and employment situation, but if my mortgage was only a small percentage of my savings, even if it was a sub-3% rate, I'd pay it off and be done with it. Like I once paid off a .9% auto loan that had about $5000 left on it because I wanted to be done with it.

[Anonymous]

I carry debt because I have to use my money to accomplish multiple goals simultaneously. I need to build/have emergency savings, I need to save for retirement, I need to maintain my home, etc. If I didn't need to spend money on those other things and I didn't need to carry the debt in order to own a house, I don't see any reason to continue to carry the debt. But that approach to funds hinges on recognizing when I have enough money. If I didn't think 2M was enough money for my long terms needs/wants/goals, I can understand continuing to invest over paying off my mortgage.

[Anonymous]

No, but having debt or mortgage never robbed my peace of mind. I even have credit card debt for the 4-5% fee only. It doesn't bother me.
I have enough investments to pay it all off any day. I'm using someone else's money to make more money.
It's just math. If I don't make more in the market, I take some out and pay off the debt.
If having a mortgage bothers you, pay it off.

[Anonymous]

I’d pay it off. It’s approaching rounding error territory.

Chase yield all you want but simplifying finances has a benefit as well.

Another option is to use the income from the $2 million to pay your mortgage. You could get approximately $40,000 a year in dividends in board market ETFs. Put it all towards your mortgage.

Good choices to have, OP.

[Anonymous]

Anonymous wrote:$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.

Well it is smart, because it's a guaranteed return. And yes, with $1.85M left to invest, the OP will be just fine with "cash flow" and money to have in the market. Also it's less $$ to spend, as most Americans have trouble saving and not spending a huge amount like that

[Anonymous]

No. Our NW is $6M and have no plans to prepay our remaining $300k at 2.5%

[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’m trying to understand how you calculate the interest earned if mortgage is not prepaid. If let’s say I have $600k mortgage, I would be earning interest in the total amount of $600k invested in CDs. Whereby with mortgage payments I’ll be paying to the bank an interest and principal. Even if the % is higher than my returns on CDs I could still make more money by not prepaying, simply because of the leverage - whole $600k is earning interest. The bank gets this principal over 30 years.

So in order for me to prepay, the whole interest earned on $600k in CDs (after tax) should be less than interest paid to the bank that year (adjusted by tax savings from interest deduction).

Am I not getting it ?