In may last post, I discussed a case of a family that inherited some money and wanted to pay off their mortgage. The second homeowner I spoke to recently had also inherited money, this time as a result of her spouse's early passing and receiving life insurance proceeds. Her financial advisor is advising her to let him manage the money as he can earn more with it than if it is just sitting in the house. With four children, she is receiving enough social security survivor benefits to pay a mortgage and raise her children. The good news in this story, financially, is that the mortgage balance is much less than the insurance proceeds, so paying off the mortgage won't drain all her savings. Also, her husband had bought the life insurance so that she could pay off the house if anything ever happened to him.
In this case, paying off the mortgage with the inheritance seems like a smart idea: It was her husband's wish, she has more assets left over, other financial needs are covered. (for her, the primary concerns were daily living expenses and education for the four children). Since she will still have her assets diversified between the equity in the house and other savings, she has the structured, regular social security payments for monthly needs, paying off the mortgage doesn't put her financial priorities out of whack.
Most important of all, she and her husband are to be commended for thinking through the unthinkable, coming up with a plan and then funding it properly so that the family can be OK financially during this tough time.
Does your mortgage plan covers the "what if's" in life that could cause real hardship to important people in your life?
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