Hello, My name is Jose, I'm 29 years of age. I'm a father of three young children. 4 years ago I fell from a roof at my job, I'm now disabled for life :( .I plan to settle my State Compensation case in 1 month, I will be receiving a lump sum of $180,000.I currently owe $126,855 with 6.875% interest rate. I will also be receiving $140,000 in payments of $2,500 a month from my ex employer(neglegence law suit), I collect 600 a month from social security.Should I pay off my home or should I invest: buy another home put $150,000 down & rent my current home, buy a business, liquor store or tanning salon. What should I do? Can you please help me with an advise, I want the best for my kids.

My opinion is...

Refinance your current house. Your interest rate seems too high.

Invest the money. Be sure to diversify. You should get more than 6 - 7% you are saving from paying off your house loan. Please remember you can lose money on investing but in the longer term, you will come out OK.

Jose29:

A lot depends on your tax status after 2005. You will probably have to pay some taxes on both the lump-sum settlement and the lawsuit settlement, so you will want the tax writeoff that paying on a mortgage gives you.

However, after 2005 is over, your income may be radically reduced except for what you make on investments. That being the case, it may then make sense to pay off the house.

That said, In my opinion you need to get professional tax and financial advice immediately. A fee-only financial planner will help you get all the facts straight and give you advice on how to proceed. It may cost you as much as $3,000, but the advice is well worth it and will allow you to avoid some of the problems you may inadvertently run into if you proceed without good advice.

In 2000, my wife inherited some money. We used it to pay off our mortgage. We could have put it into World Com stock, etc. One of the best things Reagan did as president was to cajole congress into raising and indexing the standard deduction. We have not had enough deductions since then to itemize. The interest deduction was worthless to us.

Part of what you should do involves as Tax Expert said, your other income. You might even do better to keep the mortgage this year, and pay it off next as he said. Unless you have spent the time since your injury studying finance and taxes, you may be better off with the financial planner. Chances are, you would have more money if you invest the money, but that depends how much time you want to spend on investments. Even with an advisor, you still need to do your own work to insure you are getting good advice. To take advantage of all the deductions, you must have records. How tolerant are you of carefully writing things down and keeping track of records and organizing them so you can find them to give to a tax preparer?

We keep our financial life simple enough that filling out taxes ourselves is no big deal. Even if I paid somebody to fill out the forms myself, we would still have to carefully file away each W-2 and 1099 as it came in.

Sorry for your accident. We all require a place to live and housing costs keep going up. Look ahead 10-20 years. So the very best ,bar none, investment is a paid off house. No matter what, you and yours have a place to live.

I encourage every one to pay off their house before investing. That's counter intuitive because the loan guys don't like it and the PR mill encourages borrowing. Never borrow against your primary residence.

Don't invest in a business unless you have worked in that sector for at least a year. One has to paid his/dues and learn the ropes. There are a lot of scams out their and very, very few really good money making investments. Money just plain evaporates.

You are eligible ,I assume , for some kind of job retraining. Pick out something that suits your abilities and go for it.

Pay off your home, then you have it no matter what happens, employor goes bankrupt, your business investment fails.

Look at it this way, if the other investment is such a good idea why not borrow the money for it. There is no piece of mind like knowing that your home is paid for and yours no matter what. The amount of money you are talking about is not that much considering you will have to use it to replace your future earnings, it will spend very quickly. If you want to invest take the money you would have normally paid in your house payment to pay off another investement.

I would hate to see you homeless with no money 10 years down the road from bad investment choices.

Hi,
I am sorry to hear about the disability, but glad to hear you have received some good compensation for it.
I second the answer about getting a Professional opinion on how to invest. I also would like to suggest using a CPA to do your taxes... but not someone like HR Block, or others, who only use people trained to fill out forms. You really need a good, local CPA, who does corporate taxes, business taxes, and individual taxes. They would look out for your interests, looking at all different ways to save you money. Costs could be around $150 or more; just depends on your location and the CPA firm. SAVE all receipts.
I would wait until you talk with a Financial Planner before you decided whether to pay off your house. Could be the interest on the house payments would let you pay lower taxes, but that should be up to a Professional.
As another answer said, paying off your home would give you "peace of mind" that it is "free and clear"; which is something to think about. I do wish you the best on whatever you decide.