Comments on: Paying Off Mortgage With Inheritance http://frugaldad.com/2009/07/28/paying-off-mortgage-with-inheritance/ Tips for living frugal while still having a life Sat, 20 Mar 2010 02:26:27 -0500 http://wordpress.org/?v=2.8.5 hourly 1 By: Janette http://frugaldad.com/2009/07/28/paying-off-mortgage-with-inheritance/comment-page-1/#comment-29283 Janette Sun, 02 Aug 2009 10:55:35 +0000 http://frugaldad.com/?p=3239#comment-29283 I will go against the flow. Unless you are in a totally upside down state (CA,NV,FL) or you are upside down, save an emergency fund and then pay off your mortgage. The money that is freed up would be wonderful. I will go against the flow. Unless you are in a totally upside down state (CA,NV,FL) or you are upside down, save an emergency fund and then pay off your mortgage. The money that is freed up would be wonderful.

]]> By: ryan http://frugaldad.com/2009/07/28/paying-off-mortgage-with-inheritance/comment-page-1/#comment-29206 ryan Thu, 30 Jul 2009 22:42:55 +0000 http://frugaldad.com/?p=3239#comment-29206 This is a classic question that seems to come up about weekly, and there are varied answers and plans--pay off the mortgage, build up an emergency fund, stash it into an IRA, stash it into a CD. It's preposterous to assume that any of us can give reasonable advice knowing nothing about the financial and life circumstances of the questioner. How old is she? How much do they currently have in an "emergency" fund, in retirement savings? How much other debt are they carrying? How stable are their jobs? How much longer do they plan on working? Are they planning on funding their childrens' educations? What's worrisome about this topic is the original questioner asks two questions that are not only irrelevant, but hint at the fact that she has a very poor grasp of her finances in general. Most people way over-estimate the tax benefits they are reaping by deducting mortgage interest. They confuse "deduction" with "credit," and even if they understand this difference, they don't consider the opportunity cost of giving up the standard deduction in order to itemize. The second question, and this one's even worse, is "How will this affect the [sale price]?" Kacie addressed this above already. It won't. It makes no difference how much of the house you own at the point of sale vs. how much of it you are renting from the bank. When you were shopping for a house, did you ask how much the sellers owed on their mortgage in order to determine a fair price? Of course not. This is a classic question that seems to come up about weekly, and there are varied answers and plans–pay off the mortgage, build up an emergency fund, stash it into an IRA, stash it into a CD.

It’s preposterous to assume that any of us can give reasonable advice knowing nothing about the financial and life circumstances of the questioner. How old is she? How much do they currently have in an “emergency” fund, in retirement savings? How much other debt are they carrying? How stable are their jobs? How much longer do they plan on working? Are they planning on funding their childrens’ educations?

What’s worrisome about this topic is the original questioner asks two questions that are not only irrelevant, but hint at the fact that she has a very poor grasp of her finances in general.

Most people way over-estimate the tax benefits they are reaping by deducting mortgage interest. They confuse “deduction” with “credit,” and even if they understand this difference, they don’t consider the opportunity cost of giving up the standard deduction in order to itemize.

The second question, and this one’s even worse, is “How will this affect the [sale price]?” Kacie addressed this above already. It won’t. It makes no difference how much of the house you own at the point of sale vs. how much of it you are renting from the bank. When you were shopping for a house, did you ask how much the sellers owed on their mortgage in order to determine a fair price? Of course not.

]]> By: Rays Mortgage Report http://frugaldad.com/2009/07/28/paying-off-mortgage-with-inheritance/comment-page-1/#comment-29169 Rays Mortgage Report Wed, 29 Jul 2009 19:37:34 +0000 http://frugaldad.com/?p=3239#comment-29169 It is always nice to turn a profit just keep that head up things are getting better It is always nice to turn a profit just keep that head up things are getting better

]]> By: Kacie http://frugaldad.com/2009/07/28/paying-off-mortgage-with-inheritance/comment-page-1/#comment-29129 Kacie Tue, 28 Jul 2009 20:29:16 +0000 http://frugaldad.com/?p=3239#comment-29129 The price you sell your house for should have NOTHING to do with how much you owe on the first or second mortgage. Yes, it's nice to turn a profit. But unless your house is priced right for the local market, it will not sell. If I buy a house, I don't care that the previous owners owe $40k on their second mortgage and have priced their house to cover that. I just care about getting a good house at the appropriate price. The price you sell your house for should have NOTHING to do with how much you owe on the first or second mortgage.

Yes, it’s nice to turn a profit.

But unless your house is priced right for the local market, it will not sell.

If I buy a house, I don’t care that the previous owners owe $40k on their second mortgage and have priced their house to cover that.

I just care about getting a good house at the appropriate price.

]]> By: Squeaky http://frugaldad.com/2009/07/28/paying-off-mortgage-with-inheritance/comment-page-1/#comment-29125 Squeaky Tue, 28 Jul 2009 17:31:26 +0000 http://frugaldad.com/?p=3239#comment-29125 The good thing about parking the money is that it's an easily reversible decision. A decision to pay down a mortgage is not so easily reversible, because a mortgage isn't set up so that a borrower can just call up the bank and say: "Oops, I need an extra three hundred until Friday, can you tack it on to the mortgage?" So it pays to think everything through and to make sure the savings and retirement funds are flush. The good thing about parking the money is that it’s an easily reversible decision.

A decision to pay down a mortgage is not so easily reversible, because a mortgage isn’t set up so that a borrower can just call up the bank and say: “Oops, I need an extra three hundred until Friday, can you tack it on to the mortgage?” So it pays to think everything through and to make sure the savings and retirement funds are flush.

]]> By: RB @ RichBy30RetireBy40 http://frugaldad.com/2009/07/28/paying-off-mortgage-with-inheritance/comment-page-1/#comment-29118 RB @ RichBy30RetireBy40 Tue, 28 Jul 2009 13:59:42 +0000 http://frugaldad.com/?p=3239#comment-29118 Another good strategy, btw, is to pretend like you NEVER got the inheritance. Lock it away in a 4% yielding 5 year CD and lead your life as normal. Trick yourself into "Going Broke" with no money, and you'll wake up one day and have a lot! Rgds, RB Rich By 30 Retire By 40 Another good strategy, btw, is to pretend like you NEVER got the inheritance. Lock it away in a 4% yielding 5 year CD and lead your life as normal. Trick yourself into “Going Broke” with no money, and you’ll wake up one day and have a lot!

Rgds,

RB

Rich By 30 Retire By 40

]]> By: RB @ RichBy30RetireBy40 http://frugaldad.com/2009/07/28/paying-off-mortgage-with-inheritance/comment-page-1/#comment-29117 RB @ RichBy30RetireBy40 Tue, 28 Jul 2009 13:57:53 +0000 http://frugaldad.com/?p=3239#comment-29117 Great topic I love to debate. First of all, sorry for your loss. Take your time to decide as Frugaldad suggests. If your total mortgage indebtness is under $1million, then sit tight for a while. If over, pay it down to the $1mil mark b/c u cannot deduct interest on over $1mil. Having the cash in hand is very powerful. Paying off your mortgage or keeping your cash is simple accounting. Your cash disappears if you sink it into your house, and what if your house disappears too? Spread that inheritance around to your high interest rate debts, but most definitely have the good nut in hand. If you haven't used your <a href="http://www.richby30retireby40.com/2009/07/go-broke-to-win-big-heloc-edition.html" rel="nofollow"> HELOC for proper uses towards your house</a>, then by all means, pay it off. I would need more specific details to give you more hearty advice. I wrote extensively yesterday about the use of your HELOC which you may find useful. The sooner you rid yourself of debt, the sooner you will be free. Best of luck to you! Rgds, RB Rich By 30 Retire By 40 Great topic I love to debate.

First of all, sorry for your loss. Take your time to decide as Frugaldad suggests. If your total mortgage indebtness is under $1million, then sit tight for a while. If over, pay it down to the $1mil mark b/c u cannot deduct interest on over $1mil.

Having the cash in hand is very powerful. Paying off your mortgage or keeping your cash is simple accounting. Your cash disappears if you sink it into your house, and what if your house disappears too?

Spread that inheritance around to your high interest rate debts, but most definitely have the good nut in hand. If you haven’t used your HELOC for proper uses towards your house, then by all means, pay it off. I would need more specific details to give you more hearty advice.

I wrote extensively yesterday about the use of your HELOC which you may find useful.

The sooner you rid yourself of debt, the sooner you will be free. Best of luck to you!

Rgds,

RB

Rich By 30 Retire By 40

]]> By: Sherry http://frugaldad.com/2009/07/28/paying-off-mortgage-with-inheritance/comment-page-1/#comment-29116 Sherry Tue, 28 Jul 2009 13:52:30 +0000 http://frugaldad.com/?p=3239#comment-29116 Great Advice. I concur; with the current status of the housing market & a planned move, paying off the house would tie up all of their funds. Also, there will be expenses associated with their daughters education. Money in the bank is the way to go on this one. Great Advice. I concur; with the current status of the housing market & a planned move, paying off the house would tie up all of their funds. Also, there will be expenses associated with their daughters education. Money in the bank is the way to go on this one.

]]> By: Craig @ Money Help For Christians http://frugaldad.com/2009/07/28/paying-off-mortgage-with-inheritance/comment-page-1/#comment-29114 Craig @ Money Help For Christians Tue, 28 Jul 2009 13:25:53 +0000 http://frugaldad.com/?p=3239#comment-29114 I agree with the steps laid out in the advice Frugal Dad gave. An inheritance is meant to be a blessing to children. Getting rid of a second mortgage will start to free up your personal finances and as a result bring some peace to your lives. That is a great use of the money. Even if you move in two years that money will still be in the home in the form of equity. I agree with the steps laid out in the advice Frugal Dad gave. An inheritance is meant to be a blessing to children. Getting rid of a second mortgage will start to free up your personal finances and as a result bring some peace to your lives. That is a great use of the money. Even if you move in two years that money will still be in the home in the form of equity.

]]> By: Gumnos http://frugaldad.com/2009/07/28/paying-off-mortgage-with-inheritance/comment-page-1/#comment-29111 Gumnos Tue, 28 Jul 2009 13:05:02 +0000 http://frugaldad.com/?p=3239#comment-29111 Agreeing with you & Bethany, I think the thrill to get the tax deduction (instead of paying down on the mortgage, and not paying that much interest in the first place) comes from the same people that get excited at a tax refund cheque. The fact that the tax man is some how giving them money back or "cutting them a break" blinds them to the reality that they're missing opportunities to put the money to better use. -gumnos Agreeing with you & Bethany, I think the thrill to get the tax deduction (instead of paying down on the mortgage, and not paying that much interest in the first place) comes from the same people that get excited at a tax refund cheque. The fact that the tax man is some how giving them money back or “cutting them a break” blinds them to the reality that they’re missing opportunities to put the money to better use.

-gumnos

]]>