[USER]

Question. I owe approximately 100k @ 2.6% on my house. I received an inheritance last year broken down to 480k cash and 140k in an inherited IRA.

I invested 300k out of the 480k in a Brokerage account.

I took out approximately 1/10 last year in the inherited IRA and will continue to at the rate of 1/9..1/8…1/7 and so on until gone.

(A) Do I pay the house off with 100k cash.

(B) Use the inherited IRA proceeds to pay off my house monthly keeping the 2.6% rate.

(C) Use my personal money and continue paying the mortgage and investing the 100k ish?

Thanks!

[Jenny]

How old are you? What’s your over all goals and how plans? Any other debts ? Marriage status?

[Rick]

Are you retiring or downshifting on your job soon? If so, a much lower total expense level would be very nice for you.

Otherwise…

hell no! Do not lock in that low rate of return, a non compounding return at that.

And don’t hit your liquidity for a low rate like that.

[John]

If you can do better than 2.6% with the money then don’t pay off the house.

I am on the same boat as you are and the market returns are definitely better than 2.6%.

To each his own – I don’t know your circumstances to say if that is good for you

[Christopher]

I’d hold on to debt that cheap for as long as prevailing risk free rates were higher.

I’d probably hold the payoff balance in HYSA or CDs or treasuries, and the rest would go to investments.

[Tony]

I’m an optimizer and so I always look for the best ROI decision with any financial transaction – this is my ‘peace of mind’ as I never want to lose an opportunity to make easy money.

Once all tax-advantaged accounts are maxed, because of your excellent mortgage rate I would continue to pay the minimum on my mortgage and invest the rest in my brokerage and other investments.

My interest rate over the last 10 years of home ownership has been 2.85-3.75% and my market returns over that same time have been 10.2% so the arbitrage has been significant.

[S Jamie]

Invest it and keep paying your monthly mortgage payment since the interest rate is so low.

[Eric]

That’s an amazing life changing amount. I’m sure it’s personal for sure but I personally would want the paid off house just so I always had something to show for it and no stress of losing my house and I’m sure my parents or family that left me the gift would want that for me.

[Tony]

Invest everything. Never pay off house early or extra at that rate. Never. And then, never.

[Grant]

The rate is awesome so don’t pay it off. It is SUIUPER easy to make 5%.

[Jeff]

Not particularly financial info…but, if you didn’t need it before, maybe pretend ya don’t need it now.

Save it, grow it, invest it.
Also, is the inherited IRA subject to RMD?

Was the prior owner required to take distributions..?
There are new rules.

[Adam]

Mathematically speaking, you have a very high likelihood of having returns higher than 2.6% even with moderate investments, however, personal finance is personal.

Many people would absolutely love to know they have the security of always having a home to come back to.

I truly don’t think there is a *bad* choice here, just which one helps you sleep better at night.

[Marc]

Good dilemma to have – and fun to debate in a thread. I could go either way.

I’d probably invest it, pick a date by which I want my mortgage to be gone, and then plan to put an amount towards the mortgage each year that accomplishes that.

Or if I wanted to be rid of the monthly payment I’d pay it off now and wouldn’t look at interest rates ever again

[Mike]

A. No.
B. Once you’ve taken an IRA distribution, it *is* your “personal money”.

If you’re asking if you should take IRA distributions in excess of your required minimums, the answer is no.

C. Bingo. There are very few good reasons to pay off a 2.6% loan…. And a lot of good reasons not to.

[John]

Invest and use the dividends to pay off house at the different of 2.6. So, if you get 4.5.% in dividends.

Use only 1.9% towards the house pay off.

You have life changing principle there.

[Will]

Personally I would invest the money over paying off a mortgage at such a low rate.

You could even invest it really conservatively if you like, e.g., 50/50 VGSH and VTIP plus whatever stock allocation you have.

[Jeffrey]

Keep the house debt at that rate and pay minimum- can invest in a cd and get 5% or riskier to make more

[Author]

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