Paying off the Mortgage

Let’s say you’ve come into an inheritance of a few hundred thousand dollars, giving you the opportunity to eliminate your mortgage. That tends to be a complex financial matter, one that involves issues as to the alternative use of the funds, your attitude towards having liquidity and related type issues.

Generally speaking, the first issue that you want to raise (with the given being that you’ve got the funds available and you have no other pressing need for that liquidity) is, what’s your investment alternative? In other words, assume for the moment that your mortgage is at 4%; and that based on your risk tolerance and other factors, you can take that inheritance and invest it at 3%. By paying off the mortgage, you earn 4% on your money vs your alternative investment at 3%.  Thus, paying off the mortgage is worth it. On the other hand, if with your risk tolerance you assume that you can make 6% on your money, then you wouldn't want to pay off the mortgage – you’ll be better off earning 6% (assuming of course you can) at a “cost” of 4% for your mortgage.

If you have any questions contact Kal Barson at kal@barsongroup.com.