How to minimize the amount of interest over a mortgage term

[scram-kid]

This is going to sound ridiculous to a lot of people, but bear with me.
Here's my situation.

My long term girlfriend and I took out a $120k mortgage in July 2017.
We do our bills 50/50--and kind of like it that way. Good for morale.

Good news! I'm about to inherit several hundred thousand dollars. Never had any idea it was coming. I actually thought I was destined to squeak out the rest of my working life in quiet desperation, but there you go.

Back to the mortgage.
I hate emotionally, being in hock. Looking at my 30 year amortization table skeeves me.
There aren't tax advantages to keep borrowing (interest doesn't surpass standard deduction) so I feel like paying off the house is smart.
(I have a really large emergency fund, and about 200k in retirement accounts)

Here's the kicker.
If I could pay the interest with this inherited money, fine.
But I'd kind of like to keep both she and I paying the principal off together.

I know that may sound weird, but I feel like me paying off the whole shebang would throw off "our equality balance". It wouldn't feel like we were doing it together; but more like I was the big daddy. We don't roll that way.

So, right now we pay, together, just over a thousand a month. We're early in the term, so the ratio of interest/principal is about 2.5 to 1.

What's the best way to achieve my goals of
• keeping everyone "in the fight"
and
• minimizing the amount of interest paid?

Refinance to a shorter term, but add another down payment, so that the monthly payment stays the same?

I'm new to the whole mortgage thing-- sorry if I'm missing something obvious.

[Spruit]

If your mortgage interest is low, it is also an option to invest the inheritance in index funds. Then pay your share of the expenses using 4% withdrawal from those funds. Seems to me that option offers the most flexibility, in case the relationship ends or something happens that you need or want a lot of cash to cover. Money is more easily accessible in index funds than in a house.

[efree]

I second what Spruit wrote. Minimizing the amount of interest paid shouldn't be the goal here. It's best to put this money in index funds. It has two distinct advantages:

1) Your money will earn more (over long term) than your mortgage rate so financially this is better.
2) Your money will be much more easily accessible. If you lose your job or you need the money for any other reason, you can always sell the shares. If it's in your house you can't get it out easily. So this option is better from the being-prepared-for-anything point of view.

[Adam Zapple]

If the house is in your name only and you would prefer to pay it off, then fine.  Figure out what you will do with all that extra cash flow together (where will you invest it).  If you bought the house together, do not pay off the mortgage until you are married (assuming that is the long term goal).  I would never buy a house with a girlfriend unless I never planned on getting married but that's just me.  Makes things too messy if things go south.

[scram-kid]

Thanks, I guess I have a mental hang up with debt. I am pretty well invested in several Vanguard index funds, but I can keep adding to that pile.

[RWD]

What is your interest rate? It is quite likely that continuing to make minimum payments is actually the optimal strategy. See:
Investment order
Don't payoff your mortgage thread

[BTDretire]

I'm with the majority here, if your interest rate is low, to throw out a number, below 4.5%, I would invest the money. Ya, you still have the debt, but your money invested is covering the interest plus adding additional growth. Over the long run you come out with more money by keeping the mortgage and investing the inheritance.
 Also as mentioned, if you split, paying off the mortgage could create a problem, and the keeping things equal plays into it also.
 On the evil scale, mortgage dept is at the bottom of the list, if it is even on it!

[Fire2025]

Hello and Welcome,
First I would like say, I agree that investing the money is the smart play.....but I want to share my circumstances, just for information.

My partner (not married) and I own a house together.  He paid for his half with cash, which I think is a waste, but he is extremely debt adverse, so there you go.  I have a mortgage, in my name only, for my half of the house. 

So you could refinance the house and pay off your half of the house with your windfall and move the mortgage into her name only. 

Now, we own this house together.  So our situation may not fit your situation.

[Bracken_Joy]

Yep, I'll pile on. For a fixed rate, sub 4% mortgage, I would pay minimums. If you have PMI I *might* consider paying it down to the point of PMI elimination (if your mortgage allows early elimination), depending on the cost of that.

But I think you're falling into the negative debt mentality trap. Debt, on its own, is just a tool. Simple. If you can do something with that money that adds to the positive pile at a better interest rate than the mortgage interest rate takes away from it, that's a positive. There isn't anything inherently bad or good- it's just math.

Second the resources RWD linked.