Are you ready for the greatest wealth transfer in history? Ready or not, it’s already happening!
Over the next 20 years, assets valued at $70 trillion are expected to be passed down from older to younger generations. 1 That is a lot of money—and some of it might be heading your way. But if you’re not careful, it’s easy to let an inheritance go to waste. Indeed, after receiving an inheritance, over one-third of inheritors report no change in their wealth, if any decline. 2.
Did you catch that? Some folks are worse off after they inherit a financial windfall. They waste all of their inheritance on a few opulent trips or a shopping binge at the mall rather than using some of it to pay off debt or make investments for the future. Before they know it, that money is gone, and they have nothing to show for it.
Folks, don’t let that be your story. Your inheritance has the potential to change your family tree forever—so make it count!.
Navigating the Emotional and Financial Landscape
Inheriting money can be a bittersweet experience. It serves as a reminder of a loved one’s passing but also offers a chance to get better financially. However, the question of how to best utilize this windfall can be daunting. Whether to use the inheritance to pay off your mortgage is one common decision.
The Emotional Appeal of a Mortgage-Free Life
The idea of being debt-free is undeniably appealing. It can bring a sense of security and accomplishment, especially after years of diligently paying down a mortgage. The prospect of no longer having a monthly mortgage payment can be liberating, allowing for more financial flexibility and peace of mind
The Financial Reality of Investing vs. Paying Off Debt
However, it’s crucial to consider the financial implications of this decision. Even though it feels good to pay off debt, keep in mind that your mortgage is probably a low-interest loan. However, investing your inheritance in a diverse portfolio of bonds and stocks may yield higher returns over time, outpacing inflation and possibly contributing to a significant increase in your wealth.
A Balanced Approach: Combining Debt Reduction with Investment Growth
Instead of viewing these options as mutually exclusive, consider a balanced approach. A portion of your inheritance could be used to pay off your mortgage, which would lower your monthly payments and improve your financial stability. The remaining money could be invested concurrently to allow it to grow over time and possibly yield significant returns.
Factors to Consider When Making Your Decision
The optimal strategy for you will depend on several factors, including:
- Your current financial situation: Are you comfortable with your existing debt load? Do you have other financial goals, such as retirement savings or college funds for your children?
- The interest rate on your mortgage: If your mortgage has a low interest rate, paying it off might not be the most financially advantageous move.
- Your risk tolerance: Are you comfortable with the potential volatility of the stock market?
- Your investment knowledge and experience: Do you feel confident managing your own investments, or would you prefer to seek professional guidance?
Seeking Professional Advice: A Prudent Step
Regardless of your initial inclinations, consulting with a financial advisor is highly recommended. They can assist you in evaluating your risk tolerance, analyzing your financial status, and creating a customized plan that supports your long-term objectives.
Ultimately, the decision of whether or not to pay off your mortgage with an inheritance is a personal one. There is no right or wrong answer, as the best approach will vary depending on your individual circumstances and financial goals. By carefully considering the emotional and financial implications, and seeking professional guidance if needed, you can make an informed decision that aligns with your long-term financial well-being.
Make an Investment Plan With a Pro
SmartVestor shows you up to five investing professionals in your area for free. No commitments, no hidden fees.
Ramsey Solutions is a paid, non-client promoter of participating pros.
What if I Inherit a House?
Alright, so if you inherit a house, you have three choices: you can sell it, rent it out, or move in.
Should I pay off my mortgage with inheritance money?
FAQ
Is it smart to pay off house with inheritance money?
Should I clear my mortgage with inheritance?
Is $500,000 a big inheritance?
What happens if you inherit a home with a mortgage?
When you inherit a home with a mortgage, you’ll have two basic choices: sell it or keep it. Here are the pros and cons of each. If you sell the home, you can use the proceeds to pay off the loan. If there is any money left after satisfying the lender, you can keep the cash as part of your inheritance.
Do I have to pay a mortgage if I inherited a house?
I Just Inherited a House With a Mortgage. Do I Have to Pay It? Inheriting a house with a mortgage requires making some decisions about what to do with the property. One option is to sell the home and pay off the loan with the sale proceeds. If you keep the home, you can assume the existing mortgage or refinance the loan.
Should you pay a mortgage early if you inherit a house?
If you’re in the final years of a mortgage you are mostly paying for the house itself, not the financing cost. You “save” very little by paying early in this case. That’s why anyone who inherits should talk to a financial advisor before big decisions. The black-and-white of the matter is that prudent, well-managed investments will serve you better.
How do you pay off an inherited home?
Special types of financing for this process exist, known as probate or estate loans. Beneficiaries could jointly choose to sell the inherited home instead. This may make dealing with the outstanding debt easier by using the proceeds to pay off the mortgage.