Pay off mortgage?

[skopiec]

Long time listener, first time caller :)



Looking for a little advice on how to best utilize a 75K inheritance.  It's currently sitting in high rate mmarket earning 1%

Wife and I are in mid 40s.

We are near max yearly contribution limits for tax advantaged accounts.  Kids 529s are doing well and should be near target by the time that they are college bound.

Mortgage is ~130K w/ 11yrs left @ 3.5%.  Does it make sense to apply 50K  from inheritance (leaving 25K for emergency fund)and sell taxable funds to pay off the rest?  Other option is to simply add it to my 80%/20% Vanguard index fund mix. 

Total portfolio is about 1.2M w/ 450K being in property.  After funding investments, our household budget is near equilibrium.  Thinking that nixing the mortgage would give us some additional breathing room while letting us increase some contributions to taxable accounts.

Sorry if this has been beat to death.  I've been reading threads for days and can't come to a decision.

[Dezrah]

Ha.  I jumped in because your subject line said "prepay mortgage?" and was about to rip into that, but you've already fixed it.  Love the caller comment too.

To answer your question, there's no wrong answer.  Would you prefer the "math" option of investing or the increased security of lowering your cash flow needs?  What would the person who bequeathed you the money feel about your choice?  Does that really even matter to you?  Max out those tax-advantaged accounts first either way.

After funding investments, our household budget is near equilibrium.  Thinking that nixing the mortgage would give us some additional breathing room while letting us increase some contributions to taxable accounts.

I don't get how this is a problem.  That's how it's supposed to work.  Spend on your needs (and wants) and invest the rest.  If you're feeling squeezed, then back off on investments.  You've done well though so I'm a bit skeptical that you need to spend more.  If you're paying off your mortgage just so you can upgrade your lifestyle, you're missing the point of this site.

[MDM]

We are near max yearly contribution limits for tax advantaged accounts.

First change here. 

Kids 529s are doing well and should be near target by the time that they are college bound funded only after you are ~100% set for retirement.

Give them the gift of not having to worry about their parents.

Mortgage is ~130K w/ 11yrs left @ 3.5%.  Does it make sense to apply 50K  from inheritance (leaving 25K for emergency fund)and sell taxable funds to pay off the rest?

Only if the market has a very unusual next 11 years.

Other option is to simply add it to my 80%/20% Vanguard index fund mix.

That is likely the best option.

[Choices]

Many MMM readers argue to leverage your home as much as possible and invest it. However, ther is something wonderfully peaceful about having a paid-for home.

There's no wrong answer, just two right ones. You've done well to get to this point--congrats!

[skopiec]

Appreciate the replies.

As I continue to think about this, I'm realizing that it's probably more of an emotional decision than a financial one.  The inheritance came from my grandmother who was very frugal and a fantastic saver in her own right,  I'm going to do some soul-searching and figure out what she would have done...

Thanks again.

[Jack]

We are near max yearly contribution limits for tax advantaged accounts.

First change here. 

Kids 529s are doing well and should be near target by the time that they are college bound funded only after you are ~100% set for retirement.

Give them the gift of not having to worry about their parents.

Mortgage is ~130K w/ 11yrs left @ 3.5%.  Does it make sense to apply 50K  from inheritance (leaving 25K for emergency fund)and sell taxable funds to pay off the rest?

Only if the market has a very unusual next 11 years.

Other option is to simply add it to my 80%/20% Vanguard index fund mix.

That is likely the best option.

+1

As I continue to think about this, I'm realizing that it's probably more of an emotional decision than a financial one.

-1 (But you are, of course, free to act as irrationally as you like.)