r/personalfinance • u/Appropriate-Safe-49 • 7h ago
Investing What do to with an inheritance?
Inherited 250k. House has $140k left on mortgage, interest rate on that is 3.85%. No other debt. Cars are all paid off. no credit card debt Salary with my partner combined is around $150k and my partners company already contributes to RRSP plus has a great pension plan. We are already saving around $800 a month in a regular savings account. We also have liquid savings of around 50K in a regular savings account. We are 30.
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u/IRMuteButton 7h ago
Do not pay off the mortgage early. That is a great rate by today's standards. Your 3.85% rate is well within the historically low range. Today people are paying over 7% to borrow money for a home.
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u/viperfan7 1h ago
Canada has much better mortgage rates than the USA (For closed mortgages).
Still a good rate, but it's not as good as you'd think.
RRSP is a Canadian thing so I'm assuming OP is Canadian.
Canadian mortgages are... weird compared to the USA
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u/Gucci_Loincloth 1h ago edited 1h ago
“Approximately 49.9% (or roughly half) of all outstanding U.S. mortgages currently carry an interest rate of 4% or lower. - Realtor.com”
Lol. 7%+ just started and now nobody normal can fucking buy. These aren’t some “INSANELY RARE LOW RATES.” It’s just anybody who bought during covid and before covid.
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u/danfirst 1h ago
It's insanely low, compared to all other times, minus around covid. It's only so many people because everyone was refinancing at the time because the rates were so low.
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u/ElectricalRespect506 33m ago
Even today, that's still a low rate. When my parents bought in the 80s, they paid like 8 or 9%.
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u/Sharkey__Shark 7h ago
Why not? It frees up more monthly income, being an inheritance.
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u/Stone_The_Rock 7h ago
Because you could park that money in no-risk bonds and get more than 3.85% a year
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u/Sharkey__Shark 7h ago
Gotcha, but I want to ready irmutebuttons reasoning.
I figured as much, just intrigued and curious.
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u/klawUK 6h ago
you’d need to consider tax seriously on a large influx of cash like that though. you can’t shelter it quickly so there is value in ‘spending’ it on meaningful things evne if maybe there are slightly higher returns to be had
I’d be very tempted to kill the mortgage, put the balance into retirement investments as quickly as you can efficiently do (eg increase workplace contributions and use the cash to live off), and then start putting the mortgage payments into retirement savings too
(subject to having the usual emergency fund and any liquid accessible funds in good shape)
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u/Thunderplant 6h ago
How would paying off a mortgage help with taxes? If there is a relevant inheritance tax you are paying that no matter what you do with it.
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u/nowimnowhere 4h ago
Canada doesn't have a tax on inheritance, so there's nothing to attempt to shelter, and in fact if you're actually from the UK as your name suggests you should know that at the very least the first £325,000 of an estate isn't taxed there either.
You very clearly have no idea what you're talking about and it's giving me secondhand embarrassment.
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u/qosmic_qube 3h ago
There is no federal tax on an inheritance that small. 5 states have inheritance taxes depending relationship and amount. So assume no tax unless meeting a specific criteria, and no amount od spending would protect you from those inheritance taxes.
The only taxation would be on interest or gains on investments, which would happen on any savings or investments.
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u/toefungi 6h ago
I mean it frees up more money physically coming in, but if they have the value of their remaining mortgage in a brokerage account, and just withdraw the payment from there each month instead, they will still earn more, while also have a lot more stocks to sell and make liquid in an emergency versus having all your equity tied up in your paid off home.
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u/Sharkey__Shark 6h ago
Gotcha.. funny I’m getting downvoted for asking a question. I appreciate your further in depth answer.
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u/baddad49 6h ago
I’ve got a 4.25% mortgage and this is exactly what I would do, along with a cushion for the annual tax and insurance increases
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u/DarthSwash 1h ago
A paid for house is freedom. They could just as easily take the (assuming numbers here) ~$2k monthly mortgage payment and invest it instead. Wiping out your largest living expense at 30 is bonkers. Putting 2k+800 a month every month into investments for the next 20 years would very easily make them multimillionaires by retirement age.
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u/toefungi 1h ago
Sure, buy starting with that money in investments and paying their mortgage like normal, then continuing to invest once its paid off, still puts them on a better trajectory.
But I agree, the mental aspect of paying off your home is a big win itself.
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u/DarthSwash 1h ago
It just buys stability and freedom. Want to change jobs? Great. Dont have a mortgage to pay, so that slightly lower paygrade for improved working conditions doesnt matter as much. Lose a job and the markets take a shit, great. Dont have to sell positions at a loss to try to keep the bank from repossessing, which may or may not work depending on the market and job prospects. 4 years. 4 years of investing their now nonexistent mortgage payment+ the 800 monthly they are already saving and they will have the exact same ammount of money as they did, and a paid for house, at 34 years old Id rather just save and invest the 33k annually and have a slightly smaller pile of money to retire on in my 50s.
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u/Rough-Board1218 1h ago
No it doesn't. The interest on the money would more than make up for the mortgage payment
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u/tropicaldiver 6h ago
First, it converts individual property into shared property. Second, opportunity cost.
The mortgage is below 4%. You can beat that longer term with investments.
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u/baineschile 1h ago
This advice is constantly given on this sub and is usually constantly bad.
People need to understand that mortgages have AMORTIZATION schedules. The amount that goes to interest and principal can vary greatly based on the terms.
OP, pay off the mortgage.
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u/Thor7897 1m ago
This. I’d even consider parking the money in something stable. It might even be close to eliminating the base mortgage depending on the monthly payment.
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u/Ok_8890 7h ago
If you aren’t married, don’t commingle it
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u/Brilliant_Radish_567 7h ago
Amen - even if you are married I'm not sure you want to fund her retirement account with a 50% divorce rate out there
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u/Hairy_S_TrueMan 7h ago
In general, go to the sidebar/wiki for where to put money. If you inherited an IRA or other retirement instrument, you want to draw it down as slow as is legal to take advantage of the tax deferment, and make sure it's in the stock market. You want to max out your tax advantaged retirement accounts with the money - you didn't mention a roth or traditional IRA, you can max out a Roth with the money for both of you for 2026 this year and then for 2027 in January. Should be about 30k for both years for the both of you.
If there's some accounts you can only contribute to out of your paycheck, you can ask HR about other ways to contribute, or otherwise up your paycheck withholding to funnel money that way as well. Your goal is to get as much of the money into the market in a tax advantaged account as soon as possible.
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u/obscurehero 6h ago
Don’t pay off the mortgage.
You can get risk-free T-bonds for 5% and pocket the 1.15% difference. That’s worst case.
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u/pm_plz_im_lonely 4h ago
Latest 10y bonds auctioned at 5.3%. If you invest 250k you get 13,250$ every year for 10 years. Enough to buy 2 grilled cheeses every day.
Imo pay off the house, put the money in a HYSA for 2 years, then go play gordon gecko.
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u/taewongun1895 7h ago
If pay off the mortgage. I see many people talking about the low interest rate, but the mental freedom of paying off a house is wonderful.
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u/ditchdiggergirl 6h ago
The prudent alternative is to take 140k and park it in a vehicle paying more than 3.85%. If you put it in nominal bonds yielding 4+%, you win and it’s perfectly safe. The house is now effectively “paid off” whether today or in the future. So you have all the peace of mind, but you’re collecting the difference until you do pay it off.
If you itemize and take the mortgage interest deduction you win bigger. Or you can exchange some risk for higher return, though I would (and in fact did) keep it pretty conservative. But the mortgage is a cost that does not increase with inflation, so you pay today’s cost with tomorrows dollars.
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u/CrashUser 3h ago
Money market accounts are paying ~3.5+% currently, it doesn't take much to get higher than that mortgage
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u/ChartreusePeriwinkle 6h ago
If it's their forever home, yes. I would also pay off my mortgage. But if I had any plans to move, I would invest it and wait.
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u/Sierpy 2h ago
Paying it off for that reason is childish. With the money invested, not only are their expected returns higher, but they have more room for maneuver if anything comes up (i.e. if they have an emergency and they need to take on more debt, since it for sure will not be as cheap as that mortgage).
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u/Lumpy-Daikon-4584 2h ago
Mental freedom won’t pay the bills or secure your retirement. You lose so much to inflation for paying off a low rate mortgage and not investing.
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u/Michael_Smith_1 7h ago
Here are some things that I'd do.
1: I'd open up a high-yield savings account. An HYSA will earn you more interest on your savings, and I'd close that regular savings account and use an HYSA for your savings needs.
2: I'd set aside money from that $50,000 savings in the HYSA for an emergency fund that can cover six months of expenses.
3: Do you have any large purchases that you know that you're going to be making within the next five years such as cars, vacations, and such? If so, set aside money for that in the HYSA.
4: I would recommend opening up a Roth IRA for you and one for your partner and max both of those out if you haven't done so already this year. I'd also set aside $15,000 of this inheritance or savings money to be able to max it out in early January of next year. Invest this money in the S&P 500. A Roth IRA gives you tax free money in retirement.
5: I recommend investing whatever's leftover in a taxable brokerage account. Invest it in the S&P 500. I also would not put any money in the HYSA and redirect that to the taxable brokerage account. The only time that I would put money in the HYSA is for the emergency fund and any large purchases like vacations that you're going to be making within five years.
6: I would not pay off the mortgage early. Your interest rate is 3.85%. You can make more by investing it in the S&P 500, which returns about 10% per year over the long term. I use 6% as my threshold to determine whether to pay off debt or invest.
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u/CrashUser 2h ago
You can cut out the middle man and just open the brokerage account. Cash stored in it generally defaults to a money market account which is about the same yield as a HYSA, alternately you can have it default to an actual savings account if you're concerned about having FDIC insurance on it.
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u/IntelligenceOnHold 1h ago
Do not pay off house. You still get to deduct interest off your taxes. I believe you should dump most of it into stock market as it should yield far more than 3.85% in a simple index fund. Id max out roth accounts for each of you. Buy a lil something for yourselves or house to make life a bit better. You are doing well, set yourself up to retire when you want.
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u/pyrotechnicmonkey 7h ago
this might be more of a personal thing than a personal finance issue but keep in mind that in most states in inheritance is not considered community property as long as you don't commingle it into community accounts. Not sure if that's something you care about or are aware of but it's something that might be worth thinking about.
Otherwise you probably don't necessarily need to pay off the mortgage quite so soon considering the interest rate. If you still have room to contribute to something like a tax advantage account like a Roth or other IRA. might be worth contributing extra payments towards your mortgage if you already have a six or 12 month emergency fund. But I would only do that after you have already maxed out and any sort of 401(k) IRA contributions.
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u/Mayor_of_BBQ 6h ago
at that interest rate on the mortgage, I would take some amount approximate to 140 K and put it in an interest bearing account that earns more than the mortgage rate and set up an automatic draft from that account to pay the mortgage every month and forget about it…
To me that’s just as good as paying off the mortgage and man won’t be awesome when the mortgage is paid off and that account is still sitting there with $XXXX.xx in it
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u/unfriendzoned 6h ago
I am going against the crowd, Pay off your mortgage, Take yourself out for a nice/reasonable dinner and Sleep great knowing you are debt free.
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u/GaylrdFocker 7h ago
What about your retirement accounts? You mention partners RRSP and pension but nothing of yours. Do you have any large expenses coming up? You're better off investing it than paying off your mortgage
Also, for future questions start with https://www.reddit.com/r/PersonalFinanceCanada
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u/tropicaldiver 6h ago
A few thoughts. Move the $50k from a regular savings account to a HISA.
First question, do you want to maintain the inheritance as separate property?
Second question, I see you make reference to a pension plan and RRSP. Anything for you?
Third question, goals. Is this retirement money? A safety net? Something you want to use in five years or twenty five years?
More than five, I am probably moving a significant portion to equities. Whether USA, Canada, or broadly international is a different question.
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u/Hrekires 4h ago
- Put some into an emergency savings account if you don't have one already
- Whichever one of you inherited the money, open a Roth IRA and a brokerage account
- Max out your IRA for 2026 and put the rest into the brokerage account
- VTI or VOO and chill. Check back in 30 years
- Don't commingle premarital assets
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u/khearan 6h ago
Search “how to manage a windfall.” There’s a wiki in this very sub and another on the Bogleheads forum. They are extremely informative.
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u/grizzledmanifesto 5h ago
that wiki is the real mvp for anyone suddenly sitting on a pile of cash, the bogleheads one especially lays out the psychology of it which catches so many people off guard. with a mortgage that cheap i'd be in no rush to pay it down, 3.85% is basically free money when you look at what markets tend to return over time. you two have a clean slate and a good income, this is the kind of setup where maxing out tax-advantaged accounts first makes the most sense.
i'd park the cash in something boring like a high-yield savings account for a few months while you read up, no need to sprint into a decision. the 50k you already have sitting in a regular savings account is probably losing ground to inflation, so consolidating that with the inheritance and getting it into something with a real return would be step one. your partner's pension takes a lot of pressure off, which means you can be a little more aggressive with the rest without losing sleep.
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5h ago
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u/gemstatertater 3h ago
It’s much more survivable if you have multiple years of income sitting in an account. wtf.
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u/qosmic_qube 3h ago
Since you already have 5pk in savings you should invest all of this money in a couple ETFs.
Additionally, if you're not, you should invest in your 401k at work if you have them, at least as much as company match allows.
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u/DarthSwash 2h ago
Id pay off the house, take a NICE vacation, make a couple upgrades too said house and stick whatever is left into your preferred investments, and then you can just save more aggressively. Dumping your entire monthly mortgage payment into saving and investing with the freedom of owning your home free and clear at 30 is a pipe dream for 99% of people.
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u/themartorana 1h ago
Do not pay off the house. The most traditional index fund will pay 6-9% average YoY. Mortgage rate is half that. You’d be throwing away money.
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u/overindulgent 1h ago
Yea, yea. we’ve all heard this. Living rent/mortgage free is true freedom.
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u/DarthSwash 1h ago
Thank god, someone with some common sense. Assuming the mortgage payment is around 2k monthly, which is pretty standard, they'd make up any lost ground in liquidity to shove into the markets in 4 years with the 800 they are already saving monthly. At 34 years old. And they can continue investing at that rate as long as they wanted too. All it takes is a couple of bad years to wipe out 250k to cover living expenses. Being forced to sell out of positions at a loss to try to keep the bank from repossessing, which may or may not work. Couple of lost jobs, having to take substantially lower pay, etc. Deciding to have children and one of them stays home. A paid for house is a level of stability MOST working class people never know. Id rather just save the 33k annually to get back the 140k I invested in never having to make a mortgage payment again, and they would undoubtedly be multimillionaires by retirement age.
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u/DarthSwash 1h ago
No mortgage payment means if they lose income and the markets become tilted they dont have to doordash 90 hours a week to barely scrape by. They can take the mortgage payments and reinvest. The debtor is slave too the lender.
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u/ArtichokeOwn6685 39m ago
You can put cash in sgov and make same as mortage while having 250k liquid. Paying it off is the dumbest idea ever
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u/themartorana 1h ago
The richer people are the more loans they have. Wealthy people never pay cash for anything. The market returning 6-9% on average includes the Great Depression. And with an extra 150k in savings they don’t have to drive Door Dash all of a sudden.
These are the games we’ve been made to play. I don’t like it but math is math.
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u/DarthSwash 1h ago
Those rich people are also leveraging massive stock portfolios. I doubt they have that at 30 and 150k annually.
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u/Gerbole 1h ago
No, he’s right, you just have unbelievably terrible advice. The rate of inflation is right around his interest rate. Paying that off would be incredibly stupid.
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u/DarthSwash 58m ago
All it takes is a couple of bad years to wipe out 250k for living expenses. Job loss, markets take a shit, forcing you to sell positions at a loss. A paid for house is a position of fuck you to most instability. Assuming their mortgage is around 2k monthly, that plus the 800 they are already saving + the growth on the 150k they can still invest into the markets means they will be in the same position monetarily in approximately 4 years, and a paid off house. Less money going out will equal more flexibility and more potential investments long term, even in the best of market conditions. Sorry, but the math maths.
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u/AwayPudding1267 6h ago
Sounds like you are in Canada so a couple of things may differ from the US. My relatives in Quebec could only get mortgages for five years at a time, then had to refinance and prevailing rates. Is that your situation? Also, is your interest tax deductible? That could make a difference. I paid off my last $120K with a 2.8% (15 year) loan in the US with a windfall from the sale of another condo... the rational decision might have been to invest it, but it sure felt good to own it free and clear - we just invested the payment.
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u/RTJ333 3h ago
Run some numbers and figure out whwn you want to retire and how much you'll need. Try to guestimate how much needs to be invested. Even if you put a small chunk against the mortgage, like 15,000$ it could take years off your mortgage. Most of it should probably be investigated though, but make a plan.
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u/atx78701 3h ago
This money has been taxed so it is a good candidate to effectively put into a roth Ira. You each can do it
I personally like vgt - vanguard tech index fund, but it has more variance than the s&p 500, but probably will have better returns
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u/IWannaGoFast00 42m ago
Pay off the home of it will bring you peace of mind. Also understand that you will still have insurance and taxes to pay on the house forever.
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u/Scorface 40m ago
Honestly I’d just stick it in VOO and just carry on. It’s going to grow so fast. Imagine the IRS said you could max your 401k and you went ahead and did it 10 times in one day.
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u/Jennygdc2244 24m ago
Just be careful about a shady financial advisor trying to swindle you with a risky investment and don’t tell anyone you inherited this money. People will want some of it.
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u/DoNotEverListenToMe 3h ago
My god, do not screw with the house- pay it off; pay more than the minimum to pay it off sooner. What a great rate. You already hit a gold mine there.
Put 200K into a High-yield savings account if you don't want to screw with bonds or stocks and just live life normally. Use the interest you make every year for a lavish vacation.
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u/CrashUser 2h ago
That's a low interest rate, you'd be better off investing the mortgage money in moderate return bond funds that can pretty easily beat the mortgage interest rate while being very low risk. Hell, a basic money market account practically beats that interest rate currently. I'd be hesitant to put the mortgage payoff fund in something riskier like an index fund, but low risk bonds can put the money to some work at least instead of losing out on potential earnings by just paying off the mortgage.
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u/Cool_Bell_2511 6h ago
That is a really low mortgage rate. I would just invest the 250k and let the interest compound. If it doubles every 10 years it will be worth 2M in 30 years (953k in 2026 dollars assuming 2.5% annual inflation).
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u/winklesnad31 6h ago
Consider maxing or at least increasing contributions to tax advantaged accounts. It's worth considering things like retiring early or helping kids financially if you have them. Whatever you do, don't pay that mortgage off early.
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u/skyharborbj 6h ago
Don’t pay off the mortgage. You can deduct the interest and you’ll make more money investing.
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u/aasyam65 5h ago
Keep inheritance in a separate account under your name only. Do not put it in a joint account.
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u/QueasyFinger1316 6h ago
I got $1M in a major defense contractor stock when my Uncle passed away.
Awesome, except when my parents sued us for it.
Inheritance can go a couple ways…
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u/Spirited_Radio9804 7h ago
I doubt We inherited it! One did, unless it had two!
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u/aroc91 6h ago
What is the point of this comment?
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u/PM_ME_UR_SEAHORSE 3h ago
Inheritance is usually not community property shared by spouses but belongs to only the person who inherited it.
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u/Fuspo14 7h ago
Rent it, hire a management company so you don’t have to worry about a thing.
You never know what may happen with you and your partner in the future and you may need your own home.
And in this current economy it would be a lot easier to rent it than to sell it. Median days on the market right now are 61 days. People are in no hurry to buy overpriced homes with high interest rates.
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u/TowelStandard760 6h ago
How much are you paying a month in your mortgage I suppose should be the question..
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u/break_from_work 4h ago
Several scenarios... obviously the first one is pay off the house or at least pay off your portion and you will be debt free depending on how you guys contribute together or not. If not pay off partially accelerate the process and last, keep as is and invest that. a 1/4M invested at around 8% gives you a good $20k/year (time to max out your TFSA!)
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u/qbantek 4h ago
I had a 3.5% interest on my mortgage and I still paid it off when I could (balance was like $80K). Insurance where I live is crazy high and now I can have a lot of choices including fully self-insure. Plus, the peace of mind of having no outstanding debts. Truck and boat are also paid off. No meaningful debts besides small monthly balances on my credit cards thatI pay in full every month. And yes, my investments pay a higher % right now but I have also lost money in the past ¯_(ツ)_/¯
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u/Agent7619 7h ago
Pay off the mortgage. Being debt free is a feeling like few others.
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u/thisisjustascreename 7h ago
Shortsighted advice, 3.8% is super cheap financing, even CDs are beating that at present.
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u/hobbes630 7h ago
True but you can't live inside of a CD
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u/toefungi 6h ago
Yeah but you can live off the mortgage payments those CDs provide even if you need to sell them early.
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u/hobbes630 6h ago
Money is a tool to enjoy life..... sometimes people favor not having the burden of debt over the mathematical advantage of of a percentage point or two of better interest returns
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u/gemstatertater 3h ago
What burden? Seriously: what’s the burden, if you have the entire mortgage principal parked in a bank account? Keeping the loan and paying it from money that’s earning a higher interest rate is literally free money.
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u/hobbes630 2h ago
If you can't understand the feeling of your home being free and clear of debt then you won't understand the concept of giving up the potential of nominal interest gains
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u/xiphoidthorax 4h ago
Pay off the mortgage, then borrow from the equity in the home to buy another property as a investment. Claim the mortgage on your taxes.
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u/gemstatertater 3h ago
What on earth are you talking about? If they itemize, they can already write off the interest in their current loan. They’re not going to get even close to that interest rate with a new loan secured by their house. How does this make any sense?
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u/OutTheOfficeWindow 2h ago
At that rate there’s no way they’re getting higher than the standard deduction by itemizing.
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u/gemstatertater 59m ago
They could have other deductions: SALT, charitable deductions, etc. But yes, agreed it’s unlikely they’re itemizing.
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u/SQUlRMING_COlL 2h ago
Ehhhhh wrong answer. Nobody should be paying off their 3.85% debt to take on more at 7.5% and not even cash flow
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u/Lumpy-Daikon-4584 2h ago
Gross. Why not use the money for a new place without going through a HELOC?
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u/Ok_Detective_9418 7h ago
Pay off the house you still have plenty after.
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u/skyharborbj 6h ago
Don’t. You’ve got a great rate. Mortgage interest is tax deductible and you will make more investing.
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u/Ernie_McCracken88 7h ago
Do you have children or are you planning too? Any major expenses expected in next 3-5 years? How much do you have saved for retirement?
Why are you saving $800 per month into a savings account if you have 50k liquid that I presume could be an E fund?
Odds are the best use is to invest it in a broad index with the mortgage sub 4%.