Financial Gurus...

[MLank]

I want to play, an actual #3 option.

Hold onto $20k in a savings account. Invest $90k into the market, I'm thinking an index fund of his liking, and then never touch this $90k and forget about using it for the future purchase. Then, use what he needs from the inheritance money for a down payment on his next home in a few years once he has that money (invest what he doesn't use for the down payment, or buy an F-150, whatever he chooses).

[ktjones]

#1. what Shane said. KJ

[M16]

#4 Stay in the current house. Have lot's of play money.

[trophy8]

Not any risk in paying it off. Lots of risk in certain investments. Paying off now he’s promised to save that interest on the mortgage. I’d pay it off.

[SaintBlaise]

Don't payoff your mortgage. What if you need funds, are going to sell the living room. He needs to look at an amortization schedule for his loan to see what he could gain from pre-paying. (gain meaning savings in interest payments). I'll bet there's not much savings. Keep you money in your pocket for the new house, invest your inheritance and live within your means. Home mortgages are good debt. This idea works if you don't blow your money and save it for the above. I am a certified financial planner.

[trophy8]

Don't payoff your mortgage. What if you need funds, are going to sell the living room. He needs to look at an amortization schedule for his loan to see what he could gain from pre-paying. (gain meaning savings in interest payments). I'll bet there's not much savings. Keep you money in your pocket for the new house, invest your inheritance and live within your means. Home mortgages are good debt. This idea works if you don't blow your money and save it for the above. I am a certified financial planner.

Question. My cars cost me less interest if paid out over the full term than my house. Yes? 3.39 on the house. 30 year. 2.79 on Tahoe. 5 year. IF paid out over the full term. Obviously I pay extra on cars and some on home. Once cars are paid off I’ll hammer on the house. The amortization schedules for a house are insane.

[Atfulldraw]

Don't payoff your mortgage. What if you need funds, are going to sell the living room. He needs to look at an amortization schedule for his loan to see what he could gain from pre-paying. (gain meaning savings in interest payments). I'll bet there's not much savings. Keep you money in your pocket for the new house, invest your inheritance and live within your means. Home mortgages are good debt. This idea works if you don't blow your money and save it for the above. I am a certified financial planner.

you need an amortization schedule to figure out what 3.75% is on 80K for a year?

just call it 3 grand for the first year....

if he needs funds, he can either set up a line of credit or take out a new mortgage.

[trophy8]

you need an amortization schedule to figure out what 3.75% is on 80K for a year?

just call it 3 grand for the first year....

if he needs funds, he can either set up a line of credit or take out a new mortgage.

Ruined my thunder man

[Atfulldraw]

Ruined my thunder man

my apologies.

thunder on.

[Sleepy]

If he intends to rent it later when he builds a new house, why throw $80K at it? Just keep paying on it over the next couple of years and then rent it out and let someone else pay that $80K and keep your money and have your rental too. That’s how I’d do it anyway.

With $300K in cash at the time of inheritance, a man could put $150K down on a new home and still have $150K left. Plenty of cushion there for the rental property repairs or a month here and there without a tenant and probably plenty for other investments and still have a nice cushion.

That’s just me though.

[Texans42]

Yea, with over 100,000 grand in a savings account, he needs a financial planner working for him.

No he doesn’t, if he had a financial planner he most likely wouldn’t have 100k in cash savings, he would have 50k in market securities.

[Texans42]

Don't payoff your mortgage. What if you need funds, are going to sell the living room. He needs to look at an amortization schedule for his loan to see what he could gain from pre-paying. (gain meaning savings in interest payments). I'll bet there's not much savings. Keep you money in your pocket for the new house, invest your inheritance and live within your means. Home mortgages are good debt. This idea works if you don't blow your money and save it for the above. I am a certified financial planner.

See post above, this is exactly why he doesn’t need a financial planner at this time

[Texans42]

If he intends to rent it later when he builds a new house, why throw $80K at it? Just keep paying on it over the next couple of years and then rent it out and let someone else pay that $80K and keep your money and have your rental too. That’s how I’d do it anyway.

With $300K in cash at the time of inheritance, a man could put $150K down on a new home and still have $150K left. Plenty of cushion there for the rental property repairs or a month here and there without a tenant and probably plenty for other investments and still have a nice cushion.

That’s just me though.

Because he is in double trouble if economy sinks and he can’t rent it. You start selling funds in Down market to make up for it and its a triple whammy. If you have the capital to comfortabley reduce your risk then reduce it, just dont exhaust your savings either, causing another liability.

Once it’s paid off, his liabilities are taxes and up keep. Once rented he can rebuild his saving or see a CFP and him invest it.

[ctom87]

Am I your cousin?? Haha, I'm in the same predicament...my wife and I have about $90k in savings and owe $64k on the house. We are contemplating putting $60k on the house and making our normal payment which would pay the thing off in May, saving us about $12,000 in interest or something like that.

Here's where the unknowns about your situation may be the reason why I would do it vs my advice on why to do it/not to do it may differ. I don't know income, I don't know y'alls lifestyle.

I recently posted the same scenario on Reddit and got some great feedback...

Essentially there are two trains of thought and NEITHER ARE WRONG. I seriously want to stress that. The majority of folks, which I would say are 70% or so, would rather take the money in savings and invest most of it in something that, "on average earns 6%-7%." The thought is that you're earning more than what you're losing to interest on the mortgage, so essentially, after X years, you'll have Y more money than the savings you'd make paying off the interest.

Then there are people like me... I hate debt. I despise and I don't want to have any. To me, the only two debts that are acceptable are a mortgage and a car loan, and only if the interest rate is right. So if it were me, I would rather pay off the house. I acknowledge that the math works out in scenario one. Yes - the market averages gains of 6% which is more than what your interest is. However, you are NOT guaranteed to make 6%. With option 2, which is what I would do, you are guaranteed to pay the house off.

For my example, I could end up getting struck by lightning and out of work, and my wife could be in a car wreck, but hey, I only have to come up with $400 to cover taxes a month and I have a place to live. That's easy and how I want to live my life. To me, investing is the cherry on top... I want to be debt free and owe nothing to anyone before I try to make even more money.

Best of luck in their decision...there really isn't a wrong answer. It's just what they want out of life.

[BitBackShot]

He should absolutely NOT pay off what’s going to end up a rental property.

In Texas, your primary homestead survives bankruptcy with any mortgage amount due as the exception. That’s protected equity, but not on anything but your homestead.

Rates have gone up quite a bit. If his credit profile got him a 5.5% rate, he’s likely going to see at least that or more again. He should get quotes and if the rate differential is enough to entice him out of the protected homestead, then and only then should he consider paying off the rental property.

Liquidity is king, so I’d probably wait to lay any big money out on either until he gets the inheritance. Does he need to move right now that badly?