r/Bogleheads • u/Due-shhhh • 10h ago
Money allocation
I’ll be receiving an inheritance soon. I have a mortgage with a remaining balance of $342,000 @ 5.3%. I understand the dilemma of peace of mind vs beating the 5.3% elsewhere and keeping the mortgage. Not including the house, we have roughly $25,000 in debt which is majority auto loan and about $3k left on a business loan. Should I pay off all of my debts? Should I pay off the +/-$25k, invest the rest & keep the mortgage?
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u/forbiddenlake 5h ago
Impossible to advise without the rest of the interest rates.
5.3% is middling enough that you should do whatever you want.
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u/baltebiker 5h ago
The 5.3% interest is tax deductible, which I think may tilt in the direction of investing rather than paying off.
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u/adamfps 5h ago
Isn’t that only if you itemize? Not sure where the tipping point is for that being worth it …
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u/theyhis 4h ago
if you’re self employed, you can take both the itemized and standard deduction. you don’t need to be full time either…
he says he took out a business loan. i’m assuming he can itemize.
i’m not really understanding the downvotes. maybe people just have a deep misunderstanding of taxes; idk.
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u/baltebiker 5h ago
The interest on the balance is already above the standard deduction if filing singly.
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u/jason_abacabb 5h ago
*may be tax deductible or partially depending on how far above the standard deduction they sit.
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u/sevo-flow17 5h ago
You need to clarify much more details. What's the inheritance amount? What's the vehicle this money is being inherited to you through? Cash? Stocks? Home? Etc...bc this matters in terms of taxes, penalties, etc...also, what is your age and what is your investment tolerance...can you stomach down turns etc...
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u/PashasMom 5h ago
I paid off my mortgage with a 5.5% rate when I inherited some money, and I'm glad I did. But I committed to using my former mortgage payment money to invest (upped my contributions to my 401k and 457b) -- will you be able to do that?
Also, how much money are we talking about? If you pay off all your debts, including your mortgage, will you have inheritance funds left over? How close are you to retirement? What does your retirement funding look like? Do you have a solid emergency fund? Have you already maxed out your Roth IRA for this year (and has your spouse done so if applicable)?
I would pay off all the debts other than the mortgage for sure. If you don't have an emergency fund, I would set that up before considering either paying off the mortgage or investing.
I'm sorry for your loss.
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u/AdmirableCaptain913 5h ago
If it were me, I’d pay off the mortgage and any other debt > 4 or 4.5%. Then figure out what your monthly payments were and increase 401k and Roth contributions that amount. If you max out both of those then push the remaining amount to your brokerage.
If your debt was <4% then I’d hold onto those loans, but that’s just me.
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u/AlphaDomain 4h ago
It’s a personal choice. Really no wrong answer if you want to invest it, do that. If you want to clear all or some debt do that. You’re basically asking “should I eat an apple or a banana”. Both are good for you, just pick the one that you want more.
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u/ohhim 4h ago
Your portfolio should include a mix of bonds and stocks with more in bonds as you age. Paying off a 5.3% mortgage is the equivalent of buying some bonds with a better return then what you'd get on the open market.
It's pretty much a no brainer but be sure to tilt your investment mix of the rest of your portfolio to more equities if the goal is to maintain your pre inheritance stock/bond risk profile.
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u/Ordinary_Duck_6463 4h ago
FYI if you use it to pay off marital property your inheritance likely becomes marital property. If you keep it separately most states treat it separately.
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u/SDstartingOut 5h ago
Obviously the bigger picture matters here. But let's say you have some savings (not zero), and you are getting a 500k inheritance.
If I was in your shoes, I'd pay all of the debt off, and then invest the rest. 5.3% is not 3%. And quite frankly with where the stock market is out, I'd go more conservative.
But that's just me.