Another mortgage repayment thread..

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m@ver1ck
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Another mortgage repayment thread..

Post by m@ver1ck » Wed Sep 19, 2018 8:03 pm

15yr mortgage. 275K remaining, at 2.75%. Home bought at550K in 2008, now worth around 900K.

Apart from roughly 800K in retirement funds, I have around 400K in stocks and cash burning a hole in my pocket.
Do I sell the stock (around 300K) - it has done very well - msft and aapl, and I'll be making about 40% profits in a 2-3 year period and pay the home off?
Or sell the stock and invest in Vanguard Total Stock market index? (I think msft is fairly valued now)
I will make around 300K next year. Made 250K this year.
Last edited by m@ver1ck on Wed Sep 19, 2018 8:37 pm, edited 1 time in total.

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calmaniac
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Re: Another mortgage repayment thread..

Post by calmaniac » Wed Sep 19, 2018 8:08 pm

Need more info to provide guidance. Can't make decisions in a vacuum.

How old are you? How far from retirement or pulling back on work? What % of the $220k do you save a year.

bradpevans
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Re: Another mortgage repayment thread..

Post by bradpevans » Wed Sep 19, 2018 8:09 pm

At 2.75 I would not. Pay it off with future dollars. Keep invested

m@ver1ck
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Re: Another mortgage repayment thread..

Post by m@ver1ck » Wed Sep 19, 2018 10:36 pm

I'm 42. Not looking to retire anytime soon.
I put away 18K towards 401K and company matches 50% of that.
Over tye past years, ive been saving 25K post tax (all going into Msft stock) and an additional 20K (bonus) that I don't touch.
Going forward, j plan on putting away an additional 36K to fund two education accounts. This will come from bonuses that I won't touch.
New base pay is 200K. Plus 45K cash bonus + 75K RSUs that vest over 4 years.

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willthrill81
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Re: Another mortgage repayment thread..

Post by willthrill81 » Wed Sep 19, 2018 10:39 pm

Would you borrow $275k at 2.75% interest to invest today? If yes, then invest the money. If not, then pay off the mortgage.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

m@ver1ck
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Re: Another mortgage repayment thread..

Post by m@ver1ck » Wed Sep 19, 2018 10:49 pm

willthrill81 wrote:
Wed Sep 19, 2018 10:39 pm
Would you borrow $275k at 2.75% interest to invest today? If yes, then invest the money. If not, then pay off the mortgage.
I would not. However, no one would lend me $275K at 2.75% either.

I am also not sure this is the best way to think about this problem. I don't have a framework to think about this ...

What price liquidity, for instance? If I needed 275K at shirt notice, I would not be able to get it out of the house at 2.75%...

I wonder if there are better/safer uses of the monies that to pay down the mortgage...

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willthrill81
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Re: Another mortgage repayment thread..

Post by willthrill81 » Wed Sep 19, 2018 11:00 pm

m@ver1ck wrote:
Wed Sep 19, 2018 10:49 pm
willthrill81 wrote:
Wed Sep 19, 2018 10:39 pm
Would you borrow $275k at 2.75% interest to invest today? If yes, then invest the money. If not, then pay off the mortgage.
I would not. However, no one would lend me $275K at 2.75% either.

I am also not sure this is the best way to think about this problem. I don't have a framework to think about this ...

What price liquidity, for instance? If I needed 275K at shirt notice, I would not be able to get it out of the house at 2.75%...

I wonder if there are better/safer uses of the monies that to pay down the mortgage...
This is what's known as 'inverting' a problem. It offers a different way to think about the situation that may be enlightening.

If you would not borrow the money, then you should repay the mortgage. Because by leaving the mortgage open, that's precisely what you're doing.

You say that you are concerned about liquidity, but then you say that would rather not have the $275k in cash than have a $275k mortgage (i.e. you wouldn't borrow the money). That's inconsistent.

Yes, you could get a guaranteed return higher than 2.75% with the money. There are CDs out there that will pay 3.5% for a five year CD. But that 3.5% is taxable, and you might not be able to deduct all of your mortgage interest, so it may be close to a wash. At any rate, there isn't a lot of opportunity for arbitrage there, but it would enable you to maintain liquidity if that's what you really want.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Watty
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Re: Another mortgage repayment thread..

Post by Watty » Wed Sep 19, 2018 11:12 pm

Whatever you do I would sell enough of those stocks to get down to less than 10% of your portfolio just for diversification. Some people would say 5%. There would be some risk but if waiting until January to get the capital gains on your 2019 tax return would save you a lot of taxes you might wait until January to sell them.

If you own index funds already they likely also own the same stocks so you may have more exposure to them than you realize.
m@ver1ck wrote:
Wed Sep 19, 2018 8:03 pm
15yr mortgage. 275K remaining, at 2.75%. Home bought at550K in 2008, now worth around 900K.
If you have not refinanced then you likely only have five years left on the 15 year mortgage.

If that is the case then a five year CD's pays about the same interest rate. There might me some tax implications but I don't see if paying it off or not would make a lot of difference so I would pay it off, but that is just me. You would then of course save your "mortgage payment" each month and get the advantages of dollar cost averaging.

One advantage of paying it off is that you have less sequence of returns risk.

If you have 10+ years left on the mortgage then the choice is less clear since you have such a good rate.

m@ver1ck
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Re: Another mortgage repayment thread..

Post by m@ver1ck » Thu Sep 20, 2018 12:14 am

Yeah - we bought the home in 2010, not 2008. And refinanced from a 30 yr to a 15yr in 2013, so still 10yrs to go.
Come to think of it, my main fear at this point is losing gains I have made in the msft+aapl stock. So I should widdle that down a little. I'll probably just invest that 60/40 (conservatively) in vanguard total stock index/bond index, and hope it returns > 2.75%.

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Re: Another mortgage repayment thread..

Post by Starfish » Thu Sep 20, 2018 2:31 am

2.75%, effective mortgage rate of <2%, under inflation.
You make money from holding so why pay it?

If you want out of single stocks just move to index funds.

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Re: Another mortgage repayment thread..

Post by Starfish » Thu Sep 20, 2018 2:37 am

willthrill81 wrote:
Wed Sep 19, 2018 11:00 pm
m@ver1ck wrote:
Wed Sep 19, 2018 10:49 pm
willthrill81 wrote:
Wed Sep 19, 2018 10:39 pm
Would you borrow $275k at 2.75% interest to invest today? If yes, then invest the money. If not, then pay off the mortgage.
I would not. However, no one would lend me $275K at 2.75% either.

I am also not sure this is the best way to think about this problem. I don't have a framework to think about this ...

What price liquidity, for instance? If I needed 275K at shirt notice, I would not be able to get it out of the house at 2.75%...

I wonder if there are better/safer uses of the monies that to pay down the mortgage...
This is what's known as 'inverting' a problem. It offers a different way to think about the situation that may be enlightening.

If you would not borrow the money, then you should repay the mortgage. Because by leaving the mortgage open, that's precisely what you're doing.

You say that you are concerned about liquidity, but then you say that would rather not have the $275k in cash than have a $275k mortgage (i.e. you wouldn't borrow the money). That's inconsistent.

Yes, you could get a guaranteed return higher than 2.75% with the money. There are CDs out there that will pay 3.5% for a five year CD. But that 3.5% is taxable, and you might not be able to deduct all of your mortgage interest, so it may be close to a wash. At any rate, there isn't a lot of opportunity for arbitrage there, but it would enable you to maintain liquidity if that's what you really want.

That is definitely the wrong way to put it.
It's equivalent with: "Would you sell all your stock to pay the mortgage?".
Balancing the problem in one extreme is not a good way to ask a question.

Probably you should not have to have all your net worth in stock, as you would do if a a loan with the house as a collateral.
But also you should not have all your net worth in a house. Probably it's even worse in terms of risk.

But a combination is part of a sensible asset allocation scheme.

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willthrill81
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Re: Another mortgage repayment thread..

Post by willthrill81 » Thu Sep 20, 2018 9:28 am

Starfish wrote:
Thu Sep 20, 2018 2:37 am
willthrill81 wrote:
Wed Sep 19, 2018 11:00 pm
m@ver1ck wrote:
Wed Sep 19, 2018 10:49 pm
willthrill81 wrote:
Wed Sep 19, 2018 10:39 pm
Would you borrow $275k at 2.75% interest to invest today? If yes, then invest the money. If not, then pay off the mortgage.
I would not. However, no one would lend me $275K at 2.75% either.

I am also not sure this is the best way to think about this problem. I don't have a framework to think about this ...

What price liquidity, for instance? If I needed 275K at shirt notice, I would not be able to get it out of the house at 2.75%...

I wonder if there are better/safer uses of the monies that to pay down the mortgage...
This is what's known as 'inverting' a problem. It offers a different way to think about the situation that may be enlightening.

If you would not borrow the money, then you should repay the mortgage. Because by leaving the mortgage open, that's precisely what you're doing.

You say that you are concerned about liquidity, but then you say that would rather not have the $275k in cash than have a $275k mortgage (i.e. you wouldn't borrow the money). That's inconsistent.

Yes, you could get a guaranteed return higher than 2.75% with the money. There are CDs out there that will pay 3.5% for a five year CD. But that 3.5% is taxable, and you might not be able to deduct all of your mortgage interest, so it may be close to a wash. At any rate, there isn't a lot of opportunity for arbitrage there, but it would enable you to maintain liquidity if that's what you really want.

That is definitely the wrong way to put it.
It's equivalent with: "Would you sell all your stock to pay the mortgage?".
Balancing the problem in one extreme is not a good way to ask a question.

Probably you should not have to have all your net worth in stock, as you would do if a a loan with the house as a collateral.
But also you should not have all your net worth in a house. Probably it's even worse in terms of risk.

But a combination is part of a sensible asset allocation scheme.
A decision not to sell something is also a decision to buy it.

A decision not to pay down a mortgage is a decision to leverage.

This is the logical way to think of this. Anything else is mental accounting.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

Jack FFR1846
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Re: Another mortgage repayment thread..

Post by Jack FFR1846 » Thu Sep 20, 2018 9:33 am

Find a zero cost HELOC. Then pay down the mortgage. It's what I did.
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willthrill81
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Re: Another mortgage repayment thread..

Post by willthrill81 » Thu Sep 20, 2018 9:43 am

Jack FFR1846 wrote:
Thu Sep 20, 2018 9:33 am
Find a zero cost HELOC. Then pay down the mortgage. It's what I did.
Bingo. A HELOC combines the liquidity of cash with the benefit of no mortgage. Some like to opine about HELOCs being cancelled back in 2008-2009, but that was almost universally in situations where homeowners lost most or all of their equity in the property. On a free and clear property, that's a nonissue.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

Admiral
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Re: Another mortgage repayment thread..

Post by Admiral » Thu Sep 20, 2018 11:47 am

Jack FFR1846 wrote:
Thu Sep 20, 2018 9:33 am
Find a zero cost HELOC. Then pay down the mortgage. It's what I did.
What is a "Zero cost HELOC"? Are there lenders out there I don't know about that are willing to give you a $200k loan that has no interest? Borrowing money usually has a cost attached (putting aside 0% car loans.)

Or are you saying to find a HELOC with a rate that is below the mortgage rate, and use that money to pay your mortgage? And then use the money you would have paid to pay off the HELOC, and pocket the difference?

JoeRetire
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Re: Another mortgage repayment thread..

Post by JoeRetire » Thu Sep 20, 2018 11:52 am

willthrill81 wrote:
Wed Sep 19, 2018 10:39 pm
Would you borrow $275k at 2.75% interest to invest today? If yes, then invest the money. If not, then pay off the mortgage.
Are the investments returning more than 2.75% ? If not, then sell and pay off the mortgage (and find new investments that return more). If not, then stay invested.

Admiral
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Re: Another mortgage repayment thread..

Post by Admiral » Thu Sep 20, 2018 12:08 pm

willthrill81 wrote:
Wed Sep 19, 2018 10:39 pm
Would you borrow $275k at 2.75% interest to invest today? If yes, then invest the money. If not, then pay off the mortgage.
This formulation is often used, but it does not reflect the real world. First, when you borrow for a home, no one expects you to have collateral that is equal to the value of the loan (that's what the house is). If walk into a bank and ask for a $275k loan at 2.75 percent, will they give it to me if I have no assets that they can seize if I don't repay it? No, they won't. They will demand collateral (likely, my house).

Second, a mortgage loan also provides imputed rent. Borrowing 275k at 2.75% may give me the money, but if I invest it all, what should I use to pay my rent? If I'm using money from my cash flow, well, I might as well have a mortgage.

Finally, as someone else posted, there is the liquidity issue. If I owe $100k @ 5% and also have $100k in the bank, that may be because I'm willing to pay 5% because I need the money for another purpose and don't want to be house rich and cash poor. I also may be cognizant of the fact that real estate is not a sure thing and I don't want all my eggs in one basket...I want them in various baskets.

Starfish
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Re: Another mortgage repayment thread..

Post by Starfish » Thu Sep 20, 2018 1:43 pm

willthrill81 wrote:
Thu Sep 20, 2018 9:28 am
Starfish wrote:
Thu Sep 20, 2018 2:37 am
willthrill81 wrote:
Wed Sep 19, 2018 11:00 pm
m@ver1ck wrote:
Wed Sep 19, 2018 10:49 pm
willthrill81 wrote:
Wed Sep 19, 2018 10:39 pm
Would you borrow $275k at 2.75% interest to invest today? If yes, then invest the money. If not, then pay off the mortgage.
I would not. However, no one would lend me $275K at 2.75% either.

I am also not sure this is the best way to think about this problem. I don't have a framework to think about this ...

What price liquidity, for instance? If I needed 275K at shirt notice, I would not be able to get it out of the house at 2.75%...

I wonder if there are better/safer uses of the monies that to pay down the mortgage...
This is what's known as 'inverting' a problem. It offers a different way to think about the situation that may be enlightening.

If you would not borrow the money, then you should repay the mortgage. Because by leaving the mortgage open, that's precisely what you're doing.

You say that you are concerned about liquidity, but then you say that would rather not have the $275k in cash than have a $275k mortgage (i.e. you wouldn't borrow the money). That's inconsistent.

Yes, you could get a guaranteed return higher than 2.75% with the money. There are CDs out there that will pay 3.5% for a five year CD. But that 3.5% is taxable, and you might not be able to deduct all of your mortgage interest, so it may be close to a wash. At any rate, there isn't a lot of opportunity for arbitrage there, but it would enable you to maintain liquidity if that's what you really want.

That is definitely the wrong way to put it.
It's equivalent with: "Would you sell all your stock to pay the mortgage?".
Balancing the problem in one extreme is not a good way to ask a question.

Probably you should not have to have all your net worth in stock, as you would do if a a loan with the house as a collateral.
But also you should not have all your net worth in a house. Probably it's even worse in terms of risk.

But a combination is part of a sensible asset allocation scheme.
A decision not to sell something is also a decision to buy it.

A decision not to pay down a mortgage is a decision to leverage.

This is the logical way to think of this. Anything else is mental accounting.

No, there is nothing logical about it.
Say I have a 1 million $ house, 500k equity and 500k left in the mortgage and 500k in stocks, (so 1 million net worth).
1. I could leave it like it is (based on the fact that the mortgage payment goes down with inflation every month).
2. I could sell all my stock and pay off the (very) low interest mortgage. I would have a payed off house and no stock.
3. I could take a HELOC for 500k at the same rates (just for argument sake) and put in all in the market. I would have 1 million in stock and 0 equity.
4. I have a payed off house and nothing else. I take a 500k HELOC against the house and buy stocks.

There is an obvious difference between 1,2, 3 in terms of risk, returns and Sharpe ratio. Different asset allocations.
But yes, 1 and 4 are equivalent.
You are just saying that 1 is equivalent with 2. You can use the exact same line of thought to say 1 is equivalent with 3, but none of them is equivalent.
You can "invert" the problem both ways, but it is the wrong way of inverting the problem.

PS: Of course the fact that you do not access to the same interest rate skews the problem.

Starfish
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Re: Another mortgage repayment thread..

Post by Starfish » Thu Sep 20, 2018 1:56 pm

JoeRetire wrote:
Thu Sep 20, 2018 11:52 am
willthrill81 wrote:
Wed Sep 19, 2018 10:39 pm
Would you borrow $275k at 2.75% interest to invest today? If yes, then invest the money. If not, then pay off the mortgage.
Are the investments returning more than 2.75% ? If not, then sell and pay off the mortgage (and find new investments that return more). If not, then stay invested.
That is not the right question.
The right question is "Are the investments returning more than 2.75% risk adjusted?". And of course tax rate for the investments proceeds (maybe 0? or LTCG?) vs tax rate for mortgage interest (marginal rate) makes also a major difference.

alerya
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Re: Another mortgage repayment thread..

Post by alerya » Thu Sep 20, 2018 3:24 pm

Admiral wrote:
Thu Sep 20, 2018 11:47 am
Jack FFR1846 wrote:
Thu Sep 20, 2018 9:33 am
Find a zero cost HELOC. Then pay down the mortgage. It's what I did.
What is a "Zero cost HELOC"? Are there lenders out there I don't know about that are willing to give you a $200k loan that has no interest? Borrowing money usually has a cost attached (putting aside 0% car loans.)

Or are you saying to find a HELOC with a rate that is below the mortgage rate, and use that money to pay your mortgage? And then use the money you would have paid to pay off the HELOC, and pocket the difference?
Admiral, I think what Jack FFR1846 is saying is to simultaneously pay off the remaining mortgage AND open up a HELOC that has zero closing costs/fees. This allows for a paid off home with no monthly payment and makes the equity in the home available for use in case of emergency in the form of a HELOC. The HELOC would charge interest IF USED, but with no balance, it will just remain there available in case the need ever arises.

Admiral
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Re: Another mortgage repayment thread..

Post by Admiral » Thu Sep 20, 2018 4:33 pm

alerya wrote:
Thu Sep 20, 2018 3:24 pm
Admiral wrote:
Thu Sep 20, 2018 11:47 am
Jack FFR1846 wrote:
Thu Sep 20, 2018 9:33 am
Find a zero cost HELOC. Then pay down the mortgage. It's what I did.
What is a "Zero cost HELOC"? Are there lenders out there I don't know about that are willing to give you a $200k loan that has no interest? Borrowing money usually has a cost attached (putting aside 0% car loans.)

Or are you saying to find a HELOC with a rate that is below the mortgage rate, and use that money to pay your mortgage? And then use the money you would have paid to pay off the HELOC, and pocket the difference?
Admiral, I think what Jack FFR1846 is saying is to simultaneously pay off the remaining mortgage AND open up a HELOC that has zero closing costs/fees. This allows for a paid off home with no monthly payment and makes the equity in the home available for use in case of emergency in the form of a HELOC. The HELOC would charge interest IF USED, but with no balance, it will just remain there available in case the need ever arises.
I'm not so sure. This was also posted by Willthrill:
Bingo. A HELOC combines the liquidity of cash with the benefit of no mortgage
This implies the mortgage is paid off. And anyway this is also misleading as a HELOC does not "combine the liquidity of cash with no mortgage." A HELOC is a loan with an interest rate attached to it, same as a mortgage. If you don't use it, of course there is no interest. But if you don't use it then there's no point, except to draw on if you have no cash/EF.

Starfish
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Re: Another mortgage repayment thread..

Post by Starfish » Thu Sep 20, 2018 5:27 pm

Obviously if you don't use the money you don't get any market returns on them.
But if you use them you get to pay interest rate, and not a small one.

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Re: Another mortgage repayment thread..

Post by gvsucavie03 » Thu Sep 20, 2018 5:39 pm

Pay it off. If you don't like that, you can always take out a new mortgage. I know, I know... the OP's interest rate is lower than they currently are now....

There is no guarantee future dollars (inflation) will go beyond the interest rate. The asset appreciates regardless of having borrowed or paid it off. In 15 years, it'll still (hopefully) be worth more. Holding a mortgage as a hedge to me isn't a very compelling argument.

You can always invest what you were sending out in payments, too.

You have a great income and financial situation. No matter what, you'll be fine.

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Re: Another mortgage repayment thread..

Post by willthrill81 » Thu Sep 20, 2018 7:14 pm

Admiral wrote:
Thu Sep 20, 2018 4:33 pm
Bingo. A HELOC combines the liquidity of cash with the benefit of no mortgage
This implies the mortgage is paid off. And anyway this is also misleading as a HELOC does not "combine the liquidity of cash with no mortgage." A HELOC is a loan with an interest rate attached to it, same as a mortgage. If you don't use it, of course there is no interest. But if you don't use it then there's no point, except to draw on if you have no cash/EF.
I grow weary of all the picking of nits in this thread.

If you don't use a HELOC, there is no cost. But like cash, you have the option of using it somewhere. You only pay for this option if you actually use it. Of course it isn't exactly the same as having cash. But it is liquid, and there's no interest expense if it isn't used.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Another mortgage repayment thread..

Post by Stormbringer » Thu Sep 20, 2018 7:38 pm

willthrill81 wrote:
Thu Sep 20, 2018 9:28 am
A decision not to sell something is also a decision to buy it.
Except when you account for frictional costs, like capital gains taxes and commissions. I may not be willing to buy something for $100, but I'm also not willing to sell it for $70 (the proceeds after costs). Maybe I value it at $90, I which case I stand pat.

Edit: To me this is one of the arguments against capital gains taxes, or at least an argument for indexing them to inflation. It causes capital to get "trapped" in mediocre investments because the frictional cost of selling the asset and reallocating the capital to a better use is too high.
"Compound interest is the most powerful force in the universe." - Albert Einstein

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Re: Another mortgage repayment thread..

Post by grabiner » Thu Sep 20, 2018 9:09 pm

Wiki reference: Paying down loans versus investing
m@ver1ck wrote:
Wed Sep 19, 2018 8:03 pm
15yr mortgage. 275K remaining, at 2.75%. Home bought at550K in 2008, now worth around 900K.
So you have only five years left on the mortgage. This means that you would get a risk-free 2.75% return, with a duration of 2.5 years, if you pay it off, or a duration of 5 years if you make a partial payment.

If you invested at a similar risk level, you could earn 2.08% with a duration of about 2.5 years (Vanguard Limited-Term Tax-Exempt) or 2.64% with a duration of about 5 years (Vanguard Intermediate-Term Tax-Exempt).

Thus you should come out slightly ahead by paying your mortgage down or off if you are not deducting the interest, but behind if you are deducting the interest. (I make the same calculation, and since I can still deduct the interest on my 2.625% 10-year mortgage, I don't have any reason to pay it off early.)
Apart from roughly 800K in retirement funds, I have around 400K in stocks and cash burning a hole in my pocket.
Do I sell the stock (around 300K) - it has done very well - msft and aapl, and I'll be making about 40% profits in a 2-3 year period and pay the home off?
I would suggest selling the stock, whether you use it to pay off the mortgage or not. The reason is that you have 25% of your portfolio in two companies in the same industry, and that is an unnecessary risk. Selling all or most of the stock would give you enough money to pay off the mortgage.
Wiki David Grabiner

Admiral
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Re: Another mortgage repayment thread..

Post by Admiral » Fri Sep 21, 2018 8:29 am

willthrill81 wrote:
Thu Sep 20, 2018 7:14 pm
Admiral wrote:
Thu Sep 20, 2018 4:33 pm
Bingo. A HELOC combines the liquidity of cash with the benefit of no mortgage
This implies the mortgage is paid off. And anyway this is also misleading as a HELOC does not "combine the liquidity of cash with no mortgage." A HELOC is a loan with an interest rate attached to it, same as a mortgage. If you don't use it, of course there is no interest. But if you don't use it then there's no point, except to draw on if you have no cash/EF.
I grow weary of all the picking of nits in this thread.

If you don't use a HELOC, there is no cost. But like cash, you have the option of using it somewhere. You only pay for this option if you actually use it. Of course it isn't exactly the same as having cash. But it is liquid, and there's no interest expense if it isn't used.
I feel you, but I think it's relevant to the OP's question. And, IMO we do the OP (and others) a disservice when you (and others, not singling out you) post:
Would you borrow $275k at 2.75% interest to invest today? If yes, then invest the money. If not, then pay off the mortgage.
which is an oversimplification at best and inaccurate at worst. I also don't understand why you (and others) would suggest someone de-leverage by paying off a mortgage and then re-leverage by opening up a HELOC. (And, before you object, yes, I realize that simply opening it and not drawing on it is not leverage, but that's no different than opening a margin account and not using it. It's the usage that's the issue, not the lack thereof.)

As I've posed on other threads, I'm not averse in principle to a home equity loan under certain situations (education being one) but using it for investment in the market is not one of those situation. YMMV of course.

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willthrill81
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Re: Another mortgage repayment thread..

Post by willthrill81 » Fri Sep 21, 2018 10:15 am

Admiral wrote:
Fri Sep 21, 2018 8:29 am
willthrill81 wrote:
Thu Sep 20, 2018 7:14 pm
Would you borrow $275k at 2.75% interest to invest today? If yes, then invest the money. If not, then pay off the mortgage.
which is an oversimplification at best and inaccurate at worst. I also don't understand why you (and others) would suggest someone de-leverage by paying off a mortgage and then re-leverage by opening up a HELOC. (And, before you object, yes, I realize that simply opening it and not drawing on it is not leverage, but that's no different than opening a margin account and not using it. It's the usage that's the issue, not the lack thereof.)

As I've posed on other threads, I'm not averse in principle to a home equity loan under certain situations (education being one) but using it for investment in the market is not one of those situation. YMMV of course.
One could just as easily claim that you're overcomplicating matters. If many disagree with you, that may be a clue that your perspective is in some way flawed.

Opening a HELOC is indeed not the same thing as using it. You knew this, so I don't know why you're seemingly equating the two actions. Most people don't want large sums of cash just to have them. They want it either to invest or use as a margin of safety. A HELOC can serve the latter need quite well. There's no cost if it isn't utilized, which seems most likely for the OP, and a comparatively small cost if it is because HELOC rates are at least currently low (though this will change going forward) and because he would only pay interest on the amount of the draw. If he only needs $20k, then that's all he pays interest on, for instance.

If the OP wants to invest the funds, then he should obviously leave the mortgage intact. If he wants to get rid of the mortgage but wants to maintain some liquidity, then paying off the mortgage and opening a HELOC is likely the way to go.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

JoeRetire
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Re: Another mortgage repayment thread..

Post by JoeRetire » Fri Sep 21, 2018 10:48 am

Starfish wrote:
Thu Sep 20, 2018 1:56 pm
JoeRetire wrote:
Thu Sep 20, 2018 11:52 am
willthrill81 wrote:
Wed Sep 19, 2018 10:39 pm
Would you borrow $275k at 2.75% interest to invest today? If yes, then invest the money. If not, then pay off the mortgage.
Are the investments returning more than 2.75% ? If not, then sell and pay off the mortgage (and find new investments that return more). If not, then stay invested.
That is not the right question.
The right question is "Are the investments returning more than 2.75% risk adjusted?". And of course tax rate for the investments proceeds (maybe 0? or LTCG?) vs tax rate for mortgage interest (marginal rate) makes also a major difference.
Are the investments in your current asset allocation returning more than 2.75% ? If so, then stay invested. If not, then sell and pay off the mortgage.

Your current asset allocation incorporates your chosen level of risk.

m@ver1ck
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Re: Another mortgage repayment thread..

Post by m@ver1ck » Fri Sep 21, 2018 10:56 am

Yeah, getting lucky. All of non retirement fund were in aapl, Msft and fb. Divested from FB. Now it's all Msft and aapl. Reduced Msft to 120K and Aapl to 100K. Will leave it that.

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grabiner
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Re: Another mortgage repayment thread..

Post by grabiner » Fri Sep 21, 2018 7:23 pm

JoeRetire wrote:
Fri Sep 21, 2018 10:48 am
Are the investments in your current asset allocation returning more than 2.75% ? If so, then stay invested. If not, then sell and pay off the mortgage.

Your current asset allocation incorporates your chosen level of risk.
However, risk is not properly measured as a percentage of your investments; it is measured in dollars or as a percentage of your net worth. If you have $100K in stock, and the stock market drops by 50%, you will have $50K less to spend in retirement. If you sell bonds to pay off your mortgage (or sell stock, and then move an equal amount from bonds to stock), this doesn't change the loss you will suffer from a stock-market decline. This is the reason to use low-risk rates for comparison.
Wiki David Grabiner

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