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[TenderMercies]

If the windfall is substantial, I wouldn’t pay off debt or the mortgage.  People tend to think the advantage of paying off debt or loans all at once is saving money on interest from either credit cards or loans.  The truth is that if the windfall is big and you invest that money wisely, the return it will yield might be far greater than the interest you’re paying on your debt.  I would sit down with a financial adviser to see which option would be best for you.  

As far as the rental property goes, again, it really depends on the size of the windfall and what type of property you’re considering.  I have a condo in a complex on the beach.  It’s really only desirable to rent from May to September, but the amount I make from renting it is enough to keep the bills and taxes paid.  What gets pricey is that because it is in a complex, it needs constant repairs and renovations.  Over the past several years I’ve gotten bills to chip in for things like a new roof, a renovation to the pool, new railings, and even new pool furniture.  I think the most I paid was 8K for the roof.  That kind of stuff adds up, and unlike owning a second home, you don’t have a choice as to when the upkeep is done.  I pretty much break even every year, and that’s not such a great thing considering I only get to enjoy the property for a few weeks each season.  Again, you’d probably be better off investing your money and just buying that property when you’re ready to retire and move.  

[AuntG]

Pay off mortgage - then save like crazy while you look for the perfect vacation home that will become your retirement home. I'd love to retire in Door County, WI in just a small condo where most the other people are seasonal dwellers.

[ALRATIBA]

I had already sold the house and lived in an apartment.  I put the windfall in the bank and saved it for retirement.  

Just a bit of financial security in retirement.

[Mominohio]

I will interject here, one thing that people don't address when talking about investing something like a windfall, over paying down debt and a mortgage. 

Investments have an element of risk. The ones that make you the most money, usually have the biggest risk.

The choice to pay off one's mortgage and other debt that carries interest is that not only are you taking a level of burden off yourself financially each month, but the stress relieved knowing you carry no debt is priceless, in my opinion.

You are also securing many people's largest asset, their home. So while investing might make a gain in money, it may not either. But that mortgage is already signed and owed, and depending on how long the note still has, a lot of interest to be paid.

I'm not sure even if I could make enough on investing my money, to cover or exceed all the interest I was paying, I would be comfortable investing a lot of money before I was out of debt, and staying that way. 

I might feel more comfortable paying off debt, then the money I was paying each month on those things, or a good portion of it, turn into investments. 

[TenderMercies]

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@Mominohio wrote:

I will interject here, one thing that people don't address when talking about investing something like a windfall, over paying down debt and a mortgage. 

Investments have an element of risk. The ones that make you the most money, usually have the biggest risk.

The choice to pay off one's mortgage and other debt that carries interest is that not only are you taking a level of burden off yourself financially each month, but the stress relieved knowing you carry no debt is priceless, in my opinion.

You are also securing many people's largest asset, their home. So while investing might make a gain in money, it may not either. But that mortgage is already signed and owed, and depending on how long the note still has, a lot of interest to be paid.

I'm not sure even if I could make enough on investing my money, to cover or exceed all the interest I was paying, I would be comfortable investing a lot of money before I was out of debt, and staying that way. 

I might feel more comfortable paying off debt, then the money I was paying each month on those things, or a good portion of it, turn into investments. 

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@Mominohio  Again, all of this is relative to the amount of the windfall.  Certainly if you have a windfall of 60K and you have 50K left on your mortgage, then you should absoloutely pay off the mortgage.  However, if you have a windfall of 2 million, you should definitely invest the money and coast on the interest.  Yes, if you put a large sum of money in a risky investment, there is a chance that you could lose money.  However, smart people don't do that, and a solid financial adviser would never recommend that, either.  A smart adviser will speak to you about what your goal is for your money and help to invest your money in a vaiety of ways which will minimize risk.  

This idea that if you pay off all your debt and mortgage you have done well and provided security to you and/or your family is wrong and backward.  You are literally flushing money down the toilet if you do that.  If you invest well, you could literally use the interest from those investments to pay off your bills and mortgage each month, and never have to touch the original amount you invested.  If you think that getting all your balances to zero by dumping a bunch of money is going to make you feel good, imagine how much better it will make you and your family feel if your money is working for you, and you don't have to do anything or lose anything.  If the money is there, you don't have to feel like you're in debt any longer.  If you know that you could write a couple checks and pay it all off at any time, then debt is just a state of mind.  

[Mominohio]

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@TenderMercies wrote:

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@Mominohio wrote:

I will interject here, one thing that people don't address when talking about investing something like a windfall, over paying down debt and a mortgage. 

Investments have an element of risk. The ones that make you the most money, usually have the biggest risk.

The choice to pay off one's mortgage and other debt that carries interest is that not only are you taking a level of burden off yourself financially each month, but the stress relieved knowing you carry no debt is priceless, in my opinion.

You are also securing many people's largest asset, their home. So while investing might make a gain in money, it may not either. But that mortgage is already signed and owed, and depending on how long the note still has, a lot of interest to be paid.

I'm not sure even if I could make enough on investing my money, to cover or exceed all the interest I was paying, I would be comfortable investing a lot of money before I was out of debt, and staying that way. 

I might feel more comfortable paying off debt, then the money I was paying each month on those things, or a good portion of it, turn into investments. 

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@Mominohio  Again, all of this is relative to the amount of the windfall.  Certainly if you have a windfall of 60K and you have 50K left on your mortgage, then you should absoloutely pay off the mortgage.  However, if you have a windfall of 2 million, you should definitely invest the money and coast on the interest.  Yes, if you put a large sum of money in a risky investment, there is a chance that you could lose money.  However, smart people don't do that, and a solid financial adviser would never recommend that, either.  A smart adviser will speak to you about what your goal is for your money and help to invest your money in a variety of ways which will minimize risk.  

This idea that if you pay off all your debt and mortgage you have done well and provided security to you and/or your family is wrong and backward.  You are literally flushing money down the toilet if you do that.  If you invest well, you could literally use the interest from those investments to pay off your bills and mortgage each month, and never have to touch the original amount you invested.  If you think that getting all your balances to zero by dumping a bunch of money is going to make you feel good, imagine how much better it will make you and your family feel if your money is working for you, and you don't have to do anything or lose anything.  If the money is there, you don't have to feel like you're in debt any longer.  If you know that you could write a couple checks and pay it all off at any time, then debt is just a state of mind.  

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The point is, investing money has more risk than saving or paying off debt to secure what you already have. Most homes continue to hold their value or increase in value. And if they don't, one still has to have some place to reside, and doing so without a payment or rent is significant for most people. Yes, your real estate could loose value, but living 'free' of rent or house payments can be crucial for many people, especially in retirement. High or long term interest on things like credit cards or other loans can add up significantly. 

Just because money is invested, one cannot fully guarantee that it will always be there to later pay off debt left standing because of investing.

If one chose to invest all of a windfall, while carrying significant (to their circumstance) debt, then loose the money that was invested (and yes, it does happen, even with careful investing sometimes, there are no real guarantees) I consider it being like taking that money and gambling with it. 

Different investments have different risks and variable rates of return. For many circumstances, I don't think the all or none answer to handling a windfall is right for people carrying debt (and no other funds to pay it off). Balancing paying off or down some debt and investing some, is probably a better option than putting it all in one place for many people.

The amount of debt, the amount of other money, and the size of the windfall (along with one's tolerance of risk in investments) are all to be considered and will effect the decision. 

[froggy]

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@Mominohio wrote:

I will interject here, one thing that people don't address when talking about investing something like a windfall, over paying down debt and a mortgage. 

Investments have an element of risk. The ones that make you the most money, usually have the biggest risk.

The choice to pay off one's mortgage and other debt that carries interest is that not only are you taking a level of burden off yourself financially each month, but the stress relieved knowing you carry no debt is priceless, in my opinion.

You are also securing many people's largest asset, their home. So while investing might make a gain in money, it may not either. But that mortgage is already signed and owed, and depending on how long the note still has, a lot of interest to be paid.

I'm not sure even if I could make enough on investing my money, to cover or exceed all the interest I was paying, I would be comfortable investing a lot of money before I was out of debt, and staying that way. 

I might feel more comfortable paying off debt, then the money I was paying each month on those things, or a good portion of it, turn into investments. 

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@Mominohio

Gotta go with you on this one - I was just too lazy to write this reply. Folks tend to think in purely mathmatical terms while considering investing vs paying off debt. And the hugher the return the more risk. 

[mcducky]

I am fiscally conservative so I pay off debt first.  However, a lot of people would say get income producing property.  Especially if your mortgage rate is low.  Things to consider:  your tax bracket, your ability to pay for rental expenses, advertising rental, potential of the the rental area to decrease or increase in value, repairs, costs of evicting tenants etc.   Rentals can be a great deal or a terrible nightmare.

[SeasonedCitizen]

Excellent point about rental. I kept my house after my husband passed--and 15 years ago wasn't a problem. Now I'm in my 80's and the house has been  aging also! Have no one in the family in the same state and handyman types are rare and with the state of our country they're not always for real or trustworthy.

Life changes and we can't always see the possibilities. Either in lifestyle or health.