Financial Gurus...

[BitBackShot]

Also note, he should look for a mortgage that allows re-amortization if he waits to pay a large amount down on new house after getting the money. He’ll keep the same terms and rate but drastically lower his payment when the loan is recast.

[Sleepy]

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.

Pay off house plus inheritance and savings left

$300K
- $80K
$220K
- $150K down payment (assumption)
= $70K left over

Don’t pay off house

$300K
- $150K down payment
= $150K left over
- $80K into a new established LLC account for his rental
= $70K


Now he has the $80K in the event of an economic downturn to pay it off. He was going to spend it anyway right? Will he need it? Maybe, maybe not. If he does, it’s there. If he doesn’t, let the renters pay it down.

[trophy8]

my apologies.

thunder on.

I’d really like to hear the thoughts behind it. He may he right. Not by my math but there must be a reason. I’m no financial guru. I wing it

[Black Ice]

I’d really like to hear the thoughts behind it. He may he right. Not by my math but there must be a reason. I’m no financial guru. I wing it

Now that’s my style!


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[MLank]

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.

I like this 2 sides of the coin approach. He's in a good situation either way.

[Texans42]

Pay off house plus inheritance and savings left

$300K
- $80K
$220K
- $150K down payment (assumption)
= $70K left over

Don’t pay off house

$300K
- $150K down payment
= $150K left over
- $80K into a new established LLC account for his rental
= $70K


Now he has the $80K in the event of an economic downturn to pay it off. He was going to spend it anyway right? Will he need it? Maybe, maybe not. If he does, it’s there. If he doesn’t, let the renters pay it down.

What I do on land with in my LLC but more so I have extra capital if more land pops up I can’t live with out. My LLC 100 re-invests in itself outside of depreciating assets. But I don’t rely on the farm, it’s is a separate entity that exists to grow. My home etc are all paid for also.

Really comes down to risk tolerance. Nothing wrong with either way just have to make sure 80k isnt in securities such as UDFI because it historically gets 10% dividends...

[Sleepy]

What I do on land with in my LLC but more so I have extra capital if more land pops up I can’t live with out. My LLC 100 re-invests in itself outside of depreciating assets. But I don’t rely on the farm, it’s is a separate entity that exists to grow.

Really comes down to risk tolerance. Nothing wrong with either way just have to make sure 80k isnt in securities such as UDFI because it gets 10% dividends

Truth

[Capt.Brown]

really without knowing his total financial situation it’s hard to give advice, does he have retirement? What are his other debts? Vehicles cc, etc? I would pay off cc or any vehicles before I paid off my house. He needs to get a professional to give him advice.

[skinsfan]

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.

Good debt? Costing him $4000 this year in interest? Oh must be the $1000 he will save on taxes.

[TeamAmerica]

Refi the current house into a 15 year note at a much lower rate. Use savings to pay any additional portion of the payment not covered by their income. Rent when ready and if rent wont cover the mortgage and operating expenses then sell the house and cash out to find a better investment. Use inheritance for down payment on new house.

[Throwin Darts]

Considering that he’s sitting on a mortgage that he should have refinanced already and that he’s let a bunch of cash sit in a savings account of all places he should probably go the simple route and just pay off the current mortgage. He doesn’t sound like the guy who is going to arbitrage investment earnings and debt returns so just get rid of the mortgage

[TN_boy]

I threw up in my mouth and stopped reading at the 100k in savings.

[Black Ice]

I'm asking this for my cousin who approached me with it because I'm in mortgage and frankly, I didn't have an answer, so I'm turning to the green screen for answers.

He has $80K left on his mortgage (5.375% interest rate) and has $110,000.00 in savings. His parents are going to send him his share (roughly $190K) as soon as a house they own is sold, but that's a couple of year in the future.

He and his wife want to buy a bigger home, what he wants to know is;

should he use his savings money ($110K) now to payoff their current house or wait for the big money, combine both funds and put down a large down payment on a new house to bring their monthly mortgage payments down to very affordable and then rent their current home and collect rent?

1. Payoff current mortgage now and be debt free and start saving, then wait for the large inheritance?
or
2. Keep funds and combine with inheritance money and use as large down payment on a new home to have low monthly mortgage?


Thanks!

How much equity does he have in his current home?


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[Merc]

Pay off house plus inheritance and savings left

$300K
- $80K
$220K
- $150K down payment (assumption)
= $70K left over

Don’t pay off house

$300K
- $150K down payment
= $150K left over
- $80K into a new established LLC account for his rental
= $70K


Now he has the $80K in the event of an economic downturn to pay it off. He was going to spend it anyway right? Will he need it? Maybe, maybe not. If he does, it’s there. If he doesn’t, let the renters pay it down.

This is the way that I would lean.

Let someone else pay off the remainder of that 80k mortgage (might look at a refinance into a 15yr for a lower interest rate). And keep the payoff amount in a lower risk investment or LLC for the rental.

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[Ryan81]

Nothing wrong with paying it off and saving the interest. Just a guess but he’d probably be able to save at least 7k+ a year with no payment anymore.

Investing can be risky. He would have to earn 5.4% on his investment just to break even with the interest he’s paying. Age would also play a factor in this.

Not knowing many details about the people involved, their lifestyle, etc. but i would definitely pay down some on the mortgage, invest some in the stock market, and plan to make the house a rental in the future if they can. That reduces debt, gives them a liquid incoming producing asset (although with risk that can fluctuate overnight but think long term) and another incoming producing asset in the future.


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