First, use $125,000 to Kill the Mortgage. You won't regret it.
Next, take $10,000 and open your Vanguard Brokerage account. Buy VTSAX or VDADX (Admiral shares).
Keep $5000 in GE Capital Bank (it earns 1.05% interest) for savings/emergency fund.
Start depositing the 'would be' house payment + monthly surplus into
1. Vanguard Brokerage account
2. GE savings if it makes you feel better
3. 529 for Jr.
If some catastrophic expense comes along, and you need to, open a HELOC (probably around 3% interest currently).
Through monthly dollar-cost-averaging at your age you smooth out the stock market swings.
I was in a similar situation about a year ago. We received a check at closing for $200K after selling a rental property.
Over the course of the next year we:
+used $150,000 to pay off mortgage
+funded our 2013, 2014, 2015 Roth IRA's = $33,000
+funded the 529 up to max tax deduction in our state {$3K/year} = $9000
+kept $8000 in cash savings
This allowed me to free up $$$ and I:
+opened our Vanguard Brokerage account which now sits @ $55,000
+increased my 403b contributions to $1450/month & current 403b balance = $50,000
+purchased my other daughter a custodial DRiP for $10,000
+increased cash savings to $10,000
As you can see...by paying off your mortgage in short order, you'll be able to fund your other investments to the tune of $2000-$3000 OR MORE every month. This amount will grow quickly, and like I said earlier, protect you better from the wild market swings.
Well, good luck to you!