Yet another pay off your mortgage question, with a twist

[erutio]

Ok, we’ve seen enough pay off your mortgage or not threads here.
I am firmly in the Do Not Pay Off Your Mortgage camp.

But I have a new question I’ve been sitting on for the past 2 months.

We recently received an unexpected large inheritance, with the instructions that it’s to be used to pay off our mortgage.  It is a huge 6 figure sum, enough to cover our mortgage save for about 4 more months of payments.  It was given to us as a cash sum, as in, the estate didn’t pay the mortgage bank directly.  The cash is now in our possession in our interest bank account.  We are incredibly grateful for it. 

My initial impulse was wanting to put it all into our index funds. My reasoning is that we were instructed to use the inheritance to “pay off the mortgage”, not specifically to “pay off our mortgage in lump sum”.  The original capital would earn dividends and capital gains, and since money is fungible, and I would still be paying off the mortgage with it, just in monthly installments.  My wife thought that would piss off the karmic gods. 

So my options are:
1.    In the “spirit” of the inheritance, pay down the mortgage in lump sum now.
2.   Put the money in Vanguard, continue to make monthly payments on the mortgage, “technically” following the inheritance instructions of paying off the mortgage, just monthly.
3.   Some convoluted scheme of pay off the mortgage, then take out a HEL to put into the market.  This would incur the most fees and take the most “work”, but I do use the inheritance as intended and I still get a lump sum to invest.

As with common advice I’ve heard, we’ve sat on this cash for about 2 months now.  My wife and I are reasonable people and the emotion of this whole process has died down, and we are ready to move the cash into action now.  We’ve not increased or changed our spending habits.   This will basically move up our FIRE date to by 10+ years, with whatever we decide to do, so again, we are so very, very grateful.  I asked my parents, and they weren’t much help, they basically said, “well, the money is yours now, do whatever you want with it.”

I guess this wouldn't be such a hard decision if I wasn't so firmly in the DNPOYM club.

[TheHardenedInvestor]

I’d pay off the mortgage.

[skuzuker28]

I’d pay off the mortgage.

As would I.  I'm in the "Don't pay off your mortgage" camp as well, but I would follow the spirit of the grantor's wishes and put it on the mortgage.

[Laura33]

You know the math.  This is an emotional decision, not a financial one.  What decision do you think honors the deceased in a way that you guys will be able to live with long-term?

Personally, I'd pay off the mortgage in a lump sum, because my mom abhors debt, and it would feel like a final way to honor her, even though it is not the decision I would make myself.  OTOH, if it was not as close a relationship, or if I had some serious higher need for the money (like medical bills), then I wouldn't feel as bound to honor her last wishes.

[Rosy]

Based on how you presented your dilemma - pay off the mortgage and move on. No shenanigans.

[boarder42]

i'd do number 2 its technically correct per the wishes and i wouldnt lose any sleep over it - i dont think there is anything morally wrong here.  Shit even open a specific brokerage account and label it Mortgage payment - and move on with your life to reap the better rewards. 

[OtherJen]

i'd do number 2 its technically correct per the wishes and i wouldnt lose any sleep over it - i dont think there is anything morally wrong here.  Shit even open a specific brokerage account and label it Mortgage payment - and move on with your life to reap the better rewards.

This seems like the best of both worlds.

[oldladystache]

My reasoning is that we were instructed to use the inheritance to “pay off the mortgage”, not specifically to “pay off our mortgage in lump sum”.

You know that was what was meant.

Pay it off.

[NextTime]

If you and your wife can live with it, do whatever you want.

I have a guilty conscience, and wouldn't be able to rationalize 2 or 3 for long. It would eat at me every few days or weeks and cause me unnecessary stress and anxiety.
I don't think using a technicality is the best way to go about fulfilling a loved one's wishes. But I wouldn't call it immoral if you choose to go that way.


Edited to add that number 3 is asinine and shouldn't even be considered. If you aren't going to honor the spirit of the inheritance, just go with option 2. The only ones you need to convince are yourselves, so why go through all of the paperwork and increased  interest rate, just to pretend you paid off your mortgage?

[Candace]

If you left someone something (money or goods) in *your* will with a stipulation saying what the person inheriting was to do with it, what would you want them to do?

Do that. Golden Rule.

Never mind if you wouldn't ever put stipulations on a bequest. Would you want *your* wishes and directions honored?

[The_Pretender]

One way to look it is.... The market has been climbing for years and sustaining record growth.  With the belief the market will go stagnant/down at some point and correct itself before going up again.  my feeling would be to pay off the mortgage and then plan on paying my "mortgage payment" over the next 10 years into a vangaurd account.  You would be better equipped to dollar average. 

So I guess what do you expect the market to do in over the next decade? 

I know my opinion wreaks of illogical emotion not backed up by facts and "market timing". So take it with a grain of salt.

[Finallyunderstand]

I would honor the wishes.  Like you said, they gave you 10 years of freedom by moving up your FIRE date and not doing what they ask seems sort of like an insult to their memory IMO

[wordnerd]

If you and your wife can live with it, do whatever you want.

I have a guilty conscience, and wouldn't be able to rationalize 2 or 3 for long. It would eat at me every few days or weeks and cause me unnecessary stress and anxiety.
I don't think using a technicality is the best way to go about fulfilling a loved one's wishes. But I wouldn't call it immoral if you choose to go that way.


Edited to add that number 3 is asinine and shouldn't even be considered. If you aren't going to honor the spirit of the inheritance, just go with option 2. The only ones you need to convince are yourselves, so why go through all of the paperwork and increased  interest rate, just to pretend you paid off your mortgage?

This. But I'm also curious if the person left you that amount of money because it was the size of your mortgage or if was just how much money was in the estate. If the person gave you more than (s)he otherwise would have because of the size of the mortgage, thereby depriving someone else of the difference, I would lean even harder toward option 1. But, again, this all psychological, and you obviously knew the benefactor and his/her wishes better than any of us.

[erutio]

If you and your wife can live with it, do whatever you want.

I have a guilty conscience, and wouldn't be able to rationalize 2 or 3 for long. It would eat at me every few days or weeks and cause me unnecessary stress and anxiety.
I don't think using a technicality is the best way to go about fulfilling a loved one's wishes. But I wouldn't call it immoral if you choose to go that way.


Edited to add that number 3 is asinine and shouldn't even be considered. If you aren't going to honor the spirit of the inheritance, just go with option 2. The only ones you need to convince are yourselves, so why go through all of the paperwork and increased  interest rate, just to pretend you paid off your mortgage?

This. But I'm also curious if the person left you that amount of money because it was the size of your mortgage or if was just how much money was in the estate. If the person gave you more than (s)he otherwise would have because of the size of the mortgage, thereby depriving someone else of the difference, I would lean even harder toward option 1. But, again, this all psychological, and you obviously knew the benefactor and his/her wishes better than any of us.

It was a set amount.  The grantor's wishes are that it "pay off the mortgage", but since I settled in a higher cost of living area, it doesn't quite cover it.  I will have 4-5 more monthly payments. 

[erutio]

One way to look it is.... The market has been climbing for years and sustaining record growth.  With the belief the market will go stagnant/down at some point and correct itself before going up again.  my feeling would be to pay off the mortgage and then plan on paying my "mortgage payment" over the next 10 years into a vangaurd account.  You would be better equipped to dollar average. 

So I guess what do you expect the market to do in over the next decade? 

I know my opinion wreaks of illogical emotion not backed up by facts and "market timing". So take it with a grain of salt.

I said I was in the Do Not Pay Off Your Mortgage club, so if I had obtained this money through any other means, it would have done straight into index funds at my target AA. 

It is because of how I received this money that I'm even entertaining paying down the mortgage.

[bacchi]

I'll disagree with most everyone here.

It's not an early inheritance, right? They're dead. Their wishes expired when they flatlined. Money is for the living.

If it brings you any grief, and it sounds like it does, pay off the mortgage.

[bestname]

Pay off the mortgage and in 4/5 months put your old mortgage payment in your index funds. That's more sensible than putting a lump sum of money in the market when its this high anyway.

[boarder42]

I'll disagree with most everyone here.

It's not an early inheritance, right? They're dead. Their wishes expired when they flatlined. Money is for the living.

If it brings you any grief, and it sounds like it does, pay off the mortgage.

glad you said it i was thinking this and then decided not to say it. 

[boarder42]

Pay off the mortgage and in 4/5 months put your old mortgage payment in your index funds. That's more sensible than putting a lump sum of money in the market when its this high anyway.

hahahahahaha - i dont even - cmon man - the market is usually at an alltime high.

[ShoulderThingThatGoesUp]

I mean, paying off your mortgage still benefits you, it’s just suboptimal. Do that because that’s what the money is for.

[solon]

Here's the way I would look at it.

Before the inheritance:
You do the math both ways, and discover NOT paying off the mortgage is 10% more efficient, and shaves a year off your FIRE time. Logically, don't pay off the mortgage.

After the inheritance:
Using the inheritance to pay off the mortagage is 900% more efficient than if you had to plod through it yourself for the next 30 years, and will shave 10 years off your FIRE time. Yes, you'll lose the extra 10% from the previous math, but OMFG, don't worry about it!

[the_fixer]

Pay it off as requested it is the honorable thing to do then throw what you would have paid monthly for the mortgage into investments.

My opinion is that with a mortgage you should either be fully leveraged or fully paid off and this allows you to skip that dangerous middle ground where you partially own the house.

That monthly amount used for your mortgage payment plus the other amount you were investing will make for a fat account so you have the best of both worlds.

Sorry for your loss

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[Catbert]

I'd pay it off in lump sum as your relative wanted.  Not sure about karma, but I do hear she's a bitch. 

[PathtoFIRE]

First of all, I'm also in the "do not pay off mortgage" club, but also don't think it's all that important in the long term, so thumbs up to doing that if you so choose.

For me, I'd consider a deeper look at what the actual intention of the person bequeathing the inheritance was. What was your relationship, from where did this request arise, what were the conditions at the time both for you and for them. If I felt that the intention was more generic, like "use this inheritance to create a financially stable life for you and your family", but for this person then translated that from their own experience into "pay off house is to create financial stability for you and yours", then I don't think it's a disservice to their wishes if at this particular time, paying off the mortgage is not the best way to honor the real underlying intention.

Taking the situation into the realm of hypotheticals, I don't know that most here would argue if you add "I also have $50k in credit card debt I've been struggling to get out from under, should I pay that off first and then use the rest for paying off mortgage or investing"; the answer would probably be a majority in agreement. And if the inheritance came with the stipulation to "use half to splurge in some way", I'd bet there would be unanimous consensus to not follow through on that request.

[justchecking]

I would pay it off.  This is not a financial decision that you planned for.  You did not expect the inheritance and it was not part of your FIRE plans.  Pay it off and proceed as normal.  Don't piss off the gods. 

[Frankies Girl]

oh for fuck's sake...


Your relative thought their instruction to pay the mortgage was the best use of the money. If they'd known better, they would have said invest it or you're smart enough to decide what to do so you do it. You do not have to do jack shit that you are instructed to do unless the actual funds were tied to a specific action in order to get it.

You're not contemplating a decision like pay off the mortgage vs. hookers and blow. You know that investing the money is a superior choice here, and if your relative had been more in tune with investing in general, they likely would have agreed with your decision to use it as you saw best.

The money is yours. Your dead relative isn't going to come back to haunt you or look down from some cloud and cry over the fact that you used their gift in a slightly different manner than they'd suggested. Unless they were a controlling jerk - and I doubt that is the case since they'd have locked that inheritance down harder if they wanted you do to specific things or bust - you should do whatever you like with the gift.

It's one thing to be grateful and honored at receiving a gift, but sticking blindly to a suggestion with how to proceed based solely off someone else's unformed opinion is bizarre and short sighted to me.

[bacchi]

oh for fuck's sake...

Your relative thought their instruction to pay the mortgage was the best use of the money. If they'd known better, they would have said "invest it" or something else. You do not have to do jack shit that you are instructed to do unless the actual funds were tied to a specific action in order to get it.

You're not contemplating a decision like pay off the mortgage vs. hookers and blow. You know that investing the money is a superior choice here, and if your relative had been more in tune with investing in general, they likely would have agreed with your decision to use it as you saw best.

The money is yours. Your dead relative isn't going to come back to haunt you or look down from some cloud and cry over the fact that you used their gift in a slightly different manner than they'd suggested. Unless they were a controlling jerk - and I doubt that is the case since they'd have locked that inheritance down harder if they wanted you do to specific things or bust - you should do whatever you like with the gift.

It's one thing to be grateful and honored at receiving a gift, but sticking blindly to a suggestion with how to proceed based solely off someone else's unformed opinion is bizarre and short sighted to me.

Right-fucking-on.

And nice "hookers and blow" reference.


To follow up on PathToFire's comment,

And if the inheritance came with the stipulation to "use half to splurge in some way", I'd bet there would be unanimous consensus to not follow through on that request.

"I love classic rock. Use this $50k to hire the Doobie Brothers for a private party for you and your friends."

Now, if you don't like the Doobies and hate southern rock, do you still feel compelled to suffer through this party? Because it would be "honoring their wishes," after all. Or do you use it for a fun event of your own making?

[Davnasty]

First of all, I'm also in the "do not pay off mortgage" club, but also don't think it's all that important in the long term, so thumbs up to doing that if you so choose.

For me, I'd consider a deeper look at what the actual intention of the person bequeathing the inheritance was. What was your relationship, from where did this request arise, what were the conditions at the time both for you and for them. If I felt that the intention was more generic, like "use this inheritance to create a financially stable life for you and your family", but for this person then translated that from their own experience into "pay off house is to create financial stability for you and yours", then I don't think it's a disservice to their wishes if at this particular time, paying off the mortgage is not the best way to honor the real underlying intention.

Taking the situation into the realm of hypotheticals, I don't know that most here would argue if you add "I also have $50k in credit card debt I've been struggling to get out from under, should I pay that off first and then use the rest for paying off mortgage or investing"; the answer would probably be a majority in agreement. And if the inheritance came with the stipulation to "use half to splurge in some way", I'd bet there would be unanimous consensus to not follow through on that request.

Second this. Do you really and truly think the deceased would care have cared between the two options?

I just don't see any reason they would leave this stipulation unless they thought it was the best use of the money. It sounds like what they really wanted was for the money to go toward your future and not be used to go on vacations or to buy a sports car. If you are being "responsible" with the money you are most likely honoring the spirit of the stipulation.

[boarder42]

First of all, I'm also in the "do not pay off mortgage" club, but also don't think it's all that important in the long term, so thumbs up to doing that if you so choose.

For me, I'd consider a deeper look at what the actual intention of the person bequeathing the inheritance was. What was your relationship, from where did this request arise, what were the conditions at the time both for you and for them. If I felt that the intention was more generic, like "use this inheritance to create a financially stable life for you and your family", but for this person then translated that from their own experience into "pay off house is to create financial stability for you and yours", then I don't think it's a disservice to their wishes if at this particular time, paying off the mortgage is not the best way to honor the real underlying intention.

Taking the situation into the realm of hypotheticals, I don't know that most here would argue if you add "I also have $50k in credit card debt I've been struggling to get out from under, should I pay that off first and then use the rest for paying off mortgage or investing"; the answer would probably be a majority in agreement. And if the inheritance came with the stipulation to "use half to splurge in some way", I'd bet there would be unanimous consensus to not follow through on that request.

Second this. Do you really and truly think the deceased would care between the two options?

I just don't see any reason they would leave this stipulation unless they thought it was the best use of the money. It sounds like what they really wanted was for the money to go toward your future and not be used to go on vacations or to buy a sports car. If you are being "responsible" with the money you are most likely honoring the spirit of the stipulation.

i'm quite confident deceased people have lost the ability to care. probably most all feelings in life are no longer active in death.

[erutio]

And if the inheritance came with the stipulation to "use half to splurge in some way", I'd bet there would be unanimous consensus to not follow through on that request.

That's an interesting thought.  If the inheritance came with wishes such as: 50% to pay down mortgage, 50% to splurge in some way, I would have no problems putting that second 50% into my brokerage account, no second thoughts.  Even though depositing money into my retirement accounts goes against the spirit of the word splurge.


Anyways, thanks to everyone for the thoughts and opinions.  Lots of replies coming on both sides of the argument.  I think my wife and I have more food for thought, and we'll probably decide pretty soon what to do.  I'll post a follow up when we've made our decision.

[NextTime]

I'll disagree with most everyone here.

It's not an early inheritance, right? They're dead. Their wishes expired when they flatlined. Money is for the living.

If it brings you any grief, and it sounds like it does, pay off the mortgage.

glad you said it i was thinking this and then decided not to say it.

That's acceptable if that's what you believe. I think most people feel an obligation to the deceased's wishes.

[Davnasty]

I'll disagree with most everyone here.

It's not an early inheritance, right? They're dead. Their wishes expired when they flatlined. Money is for the living.

If it brings you any grief, and it sounds like it does, pay off the mortgage.

glad you said it i was thinking this and then decided not to say it.

That's acceptable if that's what you believe. I think most people feel an obligation to the deceased's wishes.

I do, and I still lean towards the optimal decision because that's what I think the deceased would have wanted. OP would be the best judge of that.

If I was in their shoes I'd probably go with index funds regardless though, no justification needed. I'd just do it.

[Telecaster]

And if the inheritance came with the stipulation to "use half to splurge in some way", I'd bet there would be unanimous consensus to not follow through on that request.

That's an interesting thought.  If the inheritance came with wishes such as: 50% to pay down mortgage, 50% to splurge in some way, I would have no problems putting that second 50% into my brokerage account, no second thoughts.  Even though depositing money into my retirement accounts goes against the spirit of the word splurge.


Anyways, thanks to everyone for the thoughts and opinions.  Lots of replies coming on both sides of the argument.  I think my wife and I have more food for thought, and we'll probably decide pretty soon what to do.  I'll post a follow up when we've made our decision.

 You should follow the spirit, not the letter of the request.   The person(s) who left you the money, wanted you to be free from the burden of a mortgage.   Probably with the idea that they didn't want you to use the money for hookers and blow, they wanted you to use the money to become better off financially.    As we know, the best way to be free from the burden of a the mortgage is to use the mortgage as a tool to win financial freedom--which is what the giftor really wanted for you in the first place. 

[Prairie Stash]

If you invest, are you going to tell all the other people who inherited money that you didn't pay off your mortgage?

Do whatever you feel comforatable with, but then be transparent with everyone alive. If you are being secretive, then you're doing something wrong.

Prepare to be judged by the living.

[the_fixer]

"This will basically move up our FIRE date to by 10+ years, with whatever we decide to do"

This would be a great opportunity to show the difference between paying off the house VS lump sum let's do the math and see how much difference there is between the two paths.

Lump sum into an index fund

VS

Paying off the house and putting the equivalent of your P&I into the exact same index fund.

Run out the scenario to the current payoff date of the mortgage.

The cool thing is we can look back on it and see how or if the economy or life changed the scenario at a later date and if you are willing provide updates once or twice a year.

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[Pizzabrewer]

I would set up a separate Vanguard account with this money. I'd then set it up to auto-pay the mortgage each month. No other contributions or withdrawals to this account until the mortgage is paid off.

I'd sleep soundly.

[Radagast]

...if the inheritance came with the stipulation to "use half to splurge in some way", I'd bet there would be unanimous consensus to not follow through on that request.

That is an excellent point...

So for myself I would do this...

open a specific brokerage account and label it Mortgage payment

[shawndoggy]

it wasn't your money, doesn't sound like you were planning on receiving it, the deceased gave you something specific to do with it.... why not just give it a shot and see how things turn out?  As noted it's a massive life changing windfall either way. 

[erutio]

I forgot to include in my original post, that my mortgage is a 30 year at 3.5%.  Really nice low rate, so that just adds to my reluctance to pay it off. 

[boarder42]

I forgot to include in my original post, that my mortgage is a 30 year at 3.5%.  Really nice low rate, so that just adds to my reluctance to pay it off.

Invest it man. Use the earnings to pay off the mortgage slowly.

[onlykelsey]

Here's the way I would look at it.

Before the inheritance:
You do the math both ways, and discover NOT paying off the mortgage is 10% more efficient, and shaves a year off your FIRE time. Logically, don't pay off the mortgage.

After the inheritance:
Using the inheritance to pay off the mortagage is 900% more efficient than if you had to plod through it yourself for the next 30 years, and will shave 10 years off your FIRE time. Yes, you'll lose the extra 10% from the previous math, but OMFG, don't worry about it!

+1.  Both options are SO MUCH BETTER than where you are now.  I'd do what they wanted and still be happy about having had your timeline accelerated by a DECADE.


Although, I might make the next 5 payments and THEN pay it off lump sum in case something godforsaken happens in the next 5 months and you're left with a 99% paid mrotgage.

[Rcc]

I saw this point danced around and I have an additional thought:

“This will basically move up our FIRE date to by 10+ years”

Sweet. This inheritance will buy you in this circumstance TIME, which you can’t normally buy. That is FIRE earlier to do <insert your plans here>. Ten years sooner to spend your time wondering “why did we spend so much time wondering what to do about the mortgage” or “ do I prefer cruises over all inclusive resorts” 😀

4-5 extra mortgage payments? That’s trivial to me, easily done.

Let us know what you and wife decide.

[erutio]

**Update**
Thanks for the responses.  Just wanted to give an update.  We discussed it further over the weekend, and yesterday, wired the money to my mortgage bank.  Checked in today, everything went through.  It was actually quite anti-climactic, to be honest. 

Non-optimal mathematically, but still a life changing windfall.  Very grateful for it. 

My new amortization schedule has us paying off the home in April 2019.  I will definitely not be paying off any of the remaining principal early.

Again, thanks for the replies.  I know, this is a first world problem of all first world problems, but it's nice to hear discussions for both sides of the debate from smart people.  Thanks.