Q. We have received a $140,000 inheritance.
We have two kids, aged 12 and 9, a mortgage of $340,000 on a four-bedroom house in Sydney’s Sutherland Shire and we earn about $100,000 in combined income.
We have no other loans except our mortgage and a $5000 credit card debt.
We were thinking of investing in a mortgage trust fund with $100,000 of the inheritance or paying this amount onto our mortgage. Any ideas? – Linda
A. This is a very timely inheritance, Linda. With two kids life is not cheap.
First up is the very obvious advice to clear the credit card. That will leave $135,000.
Personally I would not be investing this inherited money anywhere but your own mortgage.
An investment such as a mortgage trust fund is not without risk. Many of these have collapsed over the decades.
Sure, these would have been the higher-risk, higher-return trusts, but this is such a wonderful opportunity to dramatically reduce your mortgage
I would not miss it.
Chat to your lender about whether you can do this with an offset account, where the money “offsets” your mortgage but is accessible to you.
Any investment you make will earn taxable income, but reducing mortgage effectively gives you an earning rate equivalent to your mortgage interest rate.
I note you are planning to do this with $100,000 of the money you have inherited.
Do use the $35,000 left after paying off your card debt wisely, because opportunities like this to reduce debt are rare.