I'm about to inherit +/- $400k. I owe $425k on my 5.25% mortgage with 26 years left. I am interest & fee averse in life in general. Should I pay the full amount to my mortgage? Part of my mortgage? The payoff calculator says I'll save about $300k in interest
ETA: I'm 61; no debt; perfect credit; already max out IRA & 403b
Posted by donut364
25 Comments
Well. I’d say: yes. Paying it off, or at least paying a large chunk, makes sense as 5.25% guaranteed savings often beats most low risk investments. Most important thing: you said you’re interest adverse and this should close the circle.
Pay it off and get a HELOC if you need cash fast.
Well – it depends.
Were you relying on this inheritance to payoff the mortgage?
Incase yes pls go ahead.
In case not pls consider repaying off your other high interest debts, filling in your tax sheltered accounts and may be consider some prepayments to an extent that will reduce your monthly interest amounts that you can utilize towards upgrading you skills.
Mortgage is a good leverage to take – if it doesn’t give you sleepless nights.
You might save 300k in interest, but that money would likely quadruple easily in that timeframe and you’d lose 1200k in potential returns with this decision. Realistically it likely would easily double 3x so 400k x 2 x2 x2 is very possible in 26 years.
That being said not having a mortgage opens up a lot of financial freedom.
I’d probably invest it all personally. That money will likely make you a millionaire within 10 years.
Is that your only major debt (and highest interest rate debt)? If yes and yes, I would be very tempted to blow away the mortgage and enjoy the freer breathing you’ll feel from having that debt eliminated.
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Cash or investments? If investments, consider the tax hit by selling.
What is your age and annual income? That factors in to the equation.
Not knowing these details but given how much time you have left in your mortgage, I would not pay it all off. Instead, make 1-2 extra payments per year of principal only, which will cut off years from the mortgage but leave you with the flexibility of using the inheritance for other things throughout your life and give you a nice cushion for retirement.
I think it depends on your other financial situation. Age? Retirement saving status? Emergency fund? I’d follow the wiki on Windfalls, and follow the flow chart!
(1) Set aside an emergency fund of 6 months expenses if you don’t already have one.
(2) Put $7,000 in a Roth IRA for 2025 if you qualify (and did not already), or do a backdoor if you don’t qualify.
(3) Put $7,500 in a Roth IRA for 2026 if you qualify, or do a backdoor if you don’t qualify.
(4) I would probably try to max out my 2026 401k if available, by putting 100% of my salary into the 401k and transferring cash from the inheritance to my checking account to replace my paycheck.
The expected return on investments exceeds the 5.25% mortgage, and that is especially true for tax advantaged accounts. For non tax advantaged investments, it is a lot closer call.
(5) THEN I would probably put the rest toward the mortgage. That should be around $300-$330k. That will save you a ton on interest. For the rest of 2026 I’d pay the regular mortgage payment. If you can make a push to pay it off, go ahead and do that. But, if it is still something like $100k. . .
(6) I’d reamortize the mortgage and make smaller payments and then put the difference between the old and new payments into my 401k and/or Roth IRA in 2027 and beyond. This is a compromise solution that gets you a solid chunk into retirement accounts, allows you to continue investing for retirement, and still reduces interest you will pay in the long run.
If I hadn’t already, I’d probably max my investment contributions for last year/this year, then pay the rest to the mortgage, but that would depend on your age, current investments, etc.
Pay it all off? Ehhh.
Pay off all cc or other debt if you have any.
Max out a Roth for 2025 and 2026.
Max out your 401k contributions – keep some extra money to offset this, if needed.
Fund your emergency fund – put it in a hysa
Pay down maybe 60-75% and recast the mortgage to drastically reduce your monthly payment.
With the average market returns being well above the interest you’re paying on your mortgage, I wouldnt put anything towards that. I would simply put it all in a broad market index fund and carry on with life. The money will always be there if you change your mind.
I’m 60 and used inherited funds to pay off my mortgage (with similar rate to yours) this past November. It feels amazing to be 100% debt free and know that I’ll go into retirement owning my home free and clear.
If you don’t have a strong emergency fund I would recommend using some of the money for that. Having a pile of cash in a money market fund also ups the Sleep Well At Night factor.
OP, I’m sorry for your loss.
Pay it off and buy next car (instead of lease).
I’d probably split the difference. Pay off a big chunk (like half) to drastically reduce interest, and invest the rest. You cut way down on interest while keeping a large portion liquid and benefiting from market growth. Feels like a good middle ground between risk and peace of mind.
Absolutely pay it off and enjoy that peace of mind having a paid off house. Only few people have that luxury.
Going into retirement debt free gives you so many options. Pay it off.
That’s right on the cusp of being a real toss-up between “can you beat that interest rate by investing it instead.”
Given you are interest averse, I’d lean towards paying off your loan instead and being (presumably) debt free. So, when it says you’ll save $300k in interest, that’s an opportunity cost (or savings in this case). What are you going to do with your budget that no longer goes towards a mortgage payment? The reason I ask is that if you pay off the house and you “need” , for example, $100k for something, you won’t be taking out a HELOC at that point. It would defeat the entire purpose.
In this redditor’s opinion, seriously consider just earmarking your current mortgage payment to go into some sort of savings vehicle so you build wealth that you *can* touch, since it is doubtful you’ll want to leverage your home equity.
Calculate the returns on investing the money compared to paying it off. I think you’ll find investments come out ahead. Having the investment money in case you need the money adds extra safety in diversification.
Everyone has different and personal goals but since you asked. I would use it to pay off the mortgage. Once paid off take the future funding that would have went to the mortgage and add all or a portion to additional retirement funds, as needed. Some will say the inheritance would be worth more if you play the market and that could be true. But considering age and risk tolerance having your home taken care of goes a long ways in a future financial emergency you can’t predict. If you were behind. On retirement funds that’s a different answer.
If your house was paid off, would you take a loan against it to invest in the stock market? If the answer is no, then you should pay it off.
Pay it off completely. End of discussion.
Here is how I am thinking of this:
1. Is the house a place where I live or do I look to let someone inherit the home?
2. Do I have enough retirement income to let me do what I want when I retire?
3. Will this cash allow me to retire earlier and do i want to retire earlier?
4. What would paying off this house give me?
5. How much do I expect this house to appreciate in value over the next 25 years?
Yes! 100% at your age this makes the most sense. The market is in a bubble. We all know this and I still continue to invest. I’m 41 so I have time to ride it out but at 61 market fluctuations can destroy your future. Maybe it’s because I’m very risk adverse, but I like knowing I own my home.
I paid off a 240k mortgage at 3.75%. Did I make a mistake? I am 35 year old single, no kids. 150k in investments.
You’re already at retirement age. Nuke the mortgage.