Sometimes it’s hard to “look on the bright side” in every situation especially when a loved one dies. Death is the hardest thing humans have to internalize. After all the funeral and estate fees, you may be chosen as a recipient of money from the deceased’s estate. When you receive an inheritance, it’s essentially free money. So be smart with how you are using it. Don’t let your grief or your survivor’s guilt contribute to impulsive decisions with the money you are receiving. You can blow it all on an all-inclusive dream vacation, or you can use it to pay off your debt or better yet your mortgage. The purpose of inheritance is to provide financial comfort for you, so it’s a good idea to use it to improve your financial situation however that might apply to you.
10 years ago, the average amount of inheritance someone from Ontario received was $113,000, and the average number of families that received an inheritance was 28% in Canada. These numbers are now expected to be much higher. To help you decide how to handle the windfall of cash you might one day receive these are a few of my recommendations for you.
Pay off your existing debt first.
By putting the money towards your bills and paying more than the monthly amount on your credit card, you are saving the interest that builds up if you don’t pay your bills on time. Doing so will also improve your credit score. If you’re trying to decide which debt to pay off first choose to pay down your credit cards with higher interest rates initially then apply the remaining amount to your other debts and mortgage.
Refinance your mortgage after paying a large lump sum of money off on your mortgage.
If you do put a lot of money towards paying off the debt of your house, look into refinancing your mortgage and getting a new evaluation on your interest rates. Your lender will look at how well of a job you are doing paying off your existing debt and will reevaluate your mortgage options. A mortgage broker can help you through the entire process and determine if it’s a smart decision to refinance your mortgage or if you should look for a new lender and a better interest rate.
If you have a 20-year fixed mortgage and put $50,000 towards it, you will pay off your mortgage much faster if you keep paying your regular monthly payments after that lump sum has been made. This is called “re-amortizing” a loan. Or, you can talk to your mortgage lender to see if they will reduce your monthly mortgage payments after paying off a large lump sum of money given that the amount owing is now much less than it was previously.
If you have a variable rate mortgage and you pay off a large amount, you don’t shorten the term but you lower your monthly mortgage payments. The lender re-amortizes the loan during each interest reset period.
Talk with a financial advisor and mortgage broker ahead of doing anything. Lucky for you, I am both!
It’s always smart to work with a financial adviser, like myself, when making big decisions about a large amount of money. I will lead you in the right direction and help you decide how you want to use your inheritance and can show you the long-term benefit of each option. It’s easy to blow a large amount of money in a small time. We have all heard stories about people winning the lottery and becoming broke after only a couple of years because they weren’t smart with their money. From $100 to $1,000,000,000, it’s a good idea to work with a professional to help you make the best decision for your financial future. And remember, don’t count on getting an inheritance to cover your debts piling up. Always think of your current financial situation and your financial health in the future. If you have just received an inheritance, you might be receiving one soon or you’re looking for options to get out of debt and have equity in your current home, book a free consultation with me today by clicking here or give me a call at 705-315-0516. I’m happy to be your sounding board to talk through your options if it is helpful in your decision-making process.