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

[Anonymous]

Anonymous wrote:DH and I inherited $3M in 2021 after having just refinanced our $750K mortgage into a 2.4% 30-year fixed. We donated half of it to charity (as I assume you did as well, OP), which left us with $1.5M. We used half of that to pay off our mortgage so that we have no debt of any kind. The remaining $750K was invested in the stock market and we now have almost $3M again…plus no debt and the satisfaction of having donated $1.5M to help those less fortunate than us.

How much did you have in NW prior to inheriting ?

[Anonymous]

Anonymous wrote:DH and I inherited $3M in 2021 after having just refinanced our $750K mortgage into a 2.4% 30-year fixed. We donated half of it to charity (as I assume you did as well, OP), which left us with $1.5M. We used half of that to pay off our mortgage so that we have no debt of any kind. The remaining $750K was invested in the stock market and we now have almost $3M again…plus no debt and the satisfaction of having donated $1.5M to help those less fortunate than us.

Why do you assume that OP donated half of their inheritance to charity? I certainly wouldn't.

[Anonymous]

Anonymous wrote:

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.

+100

The whole "I'm more interested in optimizing my money" philosophy rings hollow unless you are extremely frugal in all other regards, which many on DCUM are not, as evidenced by all the "We make $350K but live paycheck-to-paycheck" threads.

This is just late-stage bubble stuff that happens after a 16-year bull market, and we've seen this before. I've watched all of Berkshire Hathaway's annual meetings, and there are instances of Buffett in the late 90s talking about how unrealistic expectations had become, citing a survey showing that investors were now expecting to get 16-17% a year from the market based on returns from the early 80s through the late 90s. And, of course, shortly thereafter, we began a "lost decade" for stocks. How many people who inherited $1M in 2008 were likely eager to put it all in the market instead of using a small fraction to secure their family's home and eliminate their largest bill??

It does not require extreme “frugality in all regards” to prioritize long term investing over paying off a low interest mortgage as part of smart financial planning. It’s the recommended strategy by most advisors and has been proven time and again to be the way to go. It certainly worked for me. I retired early a decade ago and still have a mortgage. I’ve always had a mortgage. I continued investing in the market in 2008 (almost always in index funds) and never panic sold. It’s paid huge dividends. I never would be where I am today financially had I made the rash decision to pay off a low interest mortgage instead of making sure my money worked for me. As I said before, what’s “freeing” is actually having the money to pay off the mortgage whenever you want - not actually paying it. And to get to that position you need to invest.

[Anonymous]

Anonymous wrote:DH and I inherited $3M in 2021 after having just refinanced our $750K mortgage into a 2.4% 30-year fixed. We donated half of it to charity (as I assume you did as well, OP), which left us with $1.5M. We used half of that to pay off our mortgage so that we have no debt of any kind. The remaining $750K was invested in the stock market and we now have almost $3M again…plus no debt and the satisfaction of having donated $1.5M to help those less fortunate than us.

DP but yeah, uh, no. If I receive a potentially life-changing inheritance, it's going to be used to...actually change my life and that of my family. Especially if I still have a mortgage!

I honestly don't understand charity. I do know for sure that once I've achieved financial independence, I wouldn't continue the same meaningless job in the financial industry and could very well end up working in some low-paid endeavor in which I strongly believe. But that's totally different from giving up half of the money that would actually give me the independence.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

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.

.

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.

Why wouldn't you do all that - invest, save and pay off the mortgage? Its not one or the other, it should be all.

Because paying off a mortgage at 2.25% makes no sense for us. I’d much rather invest that money in S&P 500 fund.

[Anonymous]

Anonymous wrote:DH and I inherited $3M in 2021 after having just refinanced our $750K mortgage into a 2.4% 30-year fixed. We donated half of it to charity (as I assume you did as well, OP), which left us with $1.5M. We used half of that to pay off our mortgage so that we have no debt of any kind. The remaining $750K was invested in the stock market and we now have almost $3M again…plus no debt and the satisfaction of having donated $1.5M to help those less fortunate than us.

Are you saying you turned 750k into 3M in three years? If so, I call bullshit.

[Anonymous]

Anonymous wrote:

Anonymous wrote:DH and I inherited $3M in 2021 after having just refinanced our $750K mortgage into a 2.4% 30-year fixed. We donated half of it to charity (as I assume you did as well, OP), which left us with $1.5M. We used half of that to pay off our mortgage so that we have no debt of any kind. The remaining $750K was invested in the stock market and we now have almost $3M again…plus no debt and the satisfaction of having donated $1.5M to help those less fortunate than us.

Are you saying you turned 750k into 3M in three years? If so, I call bullshit.

Bitcoin dude discovered this thread

[Anonymous]

Anonymous wrote:

Anonymous wrote:

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.

+100

The whole "I'm more interested in optimizing my money" philosophy rings hollow unless you are extremely frugal in all other regards, which many on DCUM are not, as evidenced by all the "We make $350K but live paycheck-to-paycheck" threads.

This is just late-stage bubble stuff that happens after a 16-year bull market, and we've seen this before. I've watched all of Berkshire Hathaway's annual meetings, and there are instances of Buffett in the late 90s talking about how unrealistic expectations had become, citing a survey showing that investors were now expecting to get 16-17% a year from the market based on returns from the early 80s through the late 90s. And, of course, shortly thereafter, we began a "lost decade" for stocks. How many people who inherited $1M in 2008 were likely eager to put it all in the market instead of using a small fraction to secure their family's home and eliminate their largest bill??

It does not require extreme “frugality in all regards” to prioritize long term investing over paying off a low interest mortgage as part of smart financial planning. It’s the recommended strategy by most advisors and has been proven time and again to be the way to go. It certainly worked for me. I retired early a decade ago and still have a mortgage. I’ve always had a mortgage. I continued investing in the market in 2008 (almost always in index funds) and never panic sold. It’s paid huge dividends. I never would be where I am today financially had I made the rash decision to pay off a low interest mortgage instead of making sure my money worked for me. As I said before, what’s “freeing” is actually having the money to pay off the mortgage whenever you want - not actually paying it. And to get to that position you need to invest.

+1 I inherited $4M from my dad this year and this was his philosophy. He still had a low interest mortgage at 85. We could pay both of ours off (home and vacation home) but they’re at 3% so sticking with them.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

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.

+100

The whole "I'm more interested in optimizing my money" philosophy rings hollow unless you are extremely frugal in all other regards, which many on DCUM are not, as evidenced by all the "We make $350K but live paycheck-to-paycheck" threads.

This is just late-stage bubble stuff that happens after a 16-year bull market, and we've seen this before. I've watched all of Berkshire Hathaway's annual meetings, and there are instances of Buffett in the late 90s talking about how unrealistic expectations had become, citing a survey showing that investors were now expecting to get 16-17% a year from the market based on returns from the early 80s through the late 90s. And, of course, shortly thereafter, we began a "lost decade" for stocks. How many people who inherited $1M in 2008 were likely eager to put it all in the market instead of using a small fraction to secure their family's home and eliminate their largest bill??

It does not require extreme “frugality in all regards” to prioritize long term investing over paying off a low interest mortgage as part of smart financial planning. It’s the recommended strategy by most advisors and has been proven time and again to be the way to go. It certainly worked for me. I retired early a decade ago and still have a mortgage. I’ve always had a mortgage. I continued investing in the market in 2008 (almost always in index funds) and never panic sold. It’s paid huge dividends. I never would be where I am today financially had I made the rash decision to pay off a low interest mortgage instead of making sure my money worked for me. As I said before, what’s “freeing” is actually having the money to pay off the mortgage whenever you want - not actually paying it. And to get to that position you need to invest.

Everyone is different. I have the money to pay off my mortgage whenever I want, but I don't feel free.

[Anonymous]

No, I would invest the money in the stock market.

[Anonymous]

This is kind of an interesting question from the perspective of economic class. Like most people, I will never be worth $2 million and don't have any living relatives worth that much (our parents are dead anyway). I owe over $100k on my low interest mortgage and probably WOULD pay it off if I magically came into a huge windfall.

My reasoning is this: In my tiny experience, life has a way of chewing away at any money that might accumulate. An unexpected layoff, child's medical emergency, parental dementia, broken cars. At some point down the road, I know that the money will be all gone and the best move I can make for my mood is to remove that mortgage debt hanging over my head.

It's not rational but I know I'm not as clever as most of the folks on DCUM.

[Anonymous]

Anonymous wrote:This is kind of an interesting question from the perspective of economic class. Like most people, I will never be worth $2 million and don't have any living relatives worth that much (our parents are dead anyway). I owe over $100k on my low interest mortgage and probably WOULD pay it off if I magically came into a huge windfall.

My reasoning is this: In my tiny experience, life has a way of chewing away at any money that might accumulate. An unexpected layoff, child's medical emergency, parental dementia, broken cars. At some point down the road, I know that the money will be all gone and the best move I can make for my mood is to remove that mortgage debt hanging over my head.

It's not rational but I know I'm not as clever as most of the folks on DCUM.

But, if you pay off the mortgage, then you don't have the cash cushion to address those unexpected situations.

Let's you get laid off, and your monthly expenses is $8K, including your PITI. You could live off $100K for a year.

Let's say your mortgage is $1000/mo, and you pay that off. Then you get laid off. You might not have to pay $1000 per month, but now you don't have that $100K to cover your other monthly expenses. You could take out a home equity loan, but more than likely, the rate would be higher, not to mention the fees to open the loan.

If you don't get laid off, you could invest the $100K into a safe money market account or something similar with low risk, just in case you think you might get laid off.

[Anonymous]

Anonymous wrote:Assuming no other debt, fully funded 529s, etc.? In other words, what's the peace of mind value of no longer having a mortgage?

no because i am not of subpar intelligence and putting that money into treasury bonds would generate higher returns than paying off my low interest mortgage

[Anonymous]

Anonymous wrote:

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.

You’re assuming that this hypothetical couple will sell their stock before a year. If they wait at least a year to sell the gains will be taxed at 15%, which means that if they invested $150K they would need to get an annual return of 8% to make the investment worth it, but they would probably leave the money in the market and see it grow a lot more as part of a much larger principal.

No, I'm assuming they invest in something safe like a CD or HYSA so the interest income is taxed in the year received. Buying stocks with the money could yield capital gains at some point which you're correct are taxed at a lower rate, but aren't interest income and also carry a risk of losses.

[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.

Sure, but you probably can't get tax-deductible loans at very low interest rates to pay for vacations, jewelry, or a new car.