Where to take funds for mortgage pay down?

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Topic Author
berg
Posts: 292
Joined: Mon Mar 18, 2013 8:43 pm

Where to take funds for mortgage pay down?

Post by berg » Tue Jun 30, 2020 1:17 pm

To refinance my mortgage to a lower rate, I am paying down the loan about $16,000 so it becomes conforming.

I have two options to fund this:
  • Break one of my emergency fund CDs, Ally 5 year @ 3%, scheduled to mature in September 2023
    Sell from my ~$411k taxable account, I have tax losses that would offset gains (I have purchased $344k and $68k are gains if it matters)
If I sold from efund, it would drop my efund to my target of $50k to $36k until I replenished. Plus I'd be breaking that CD (which now is higher than my new mortgage at 2.75%!!).

Honestly not sure which way to go. Though part of me thinks funding a loan isnt an emergency fund event and logically taking money from long term investments to pay down the loan feels more like transferring money from one long term bucket to another. But money is fungible, so I don't know! Am I missing anything?

Thanks!

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simplesimon
Posts: 3776
Joined: Mon Feb 25, 2008 8:53 pm
Location: Boston, MA

Re: Where to take funds for mortgage pay down?

Post by simplesimon » Tue Jun 30, 2020 1:25 pm

berg wrote:
Tue Jun 30, 2020 1:17 pm
To refinance my mortgage to a lower rate, I am paying down the loan about $16,000 so it becomes conforming.

I have two options to fund this:
  • Break one of my emergency fund CDs, Ally 5 year @ 3%, scheduled to mature in September 2023
    Sell from my ~$411k taxable account, I have tax losses that would offset gains (I have purchased $344k and $68k are gains if it matters)
If I sold from efund, it would drop my efund to my target of $50k to $36k until I replenished. Plus I'd be breaking that CD (which now is higher than my new mortgage at 2.75%!!).

Honestly not sure which way to go. Though part of me thinks funding a loan isnt an emergency fund event and logically taking money from long term investments to pay down the loan feels more like transferring money from one long term bucket to another. But money is fungible, so I don't know! Am I missing anything?

Thanks!
Sell off the highest cost basis lots in the taxable account and be done with it.

nguy44
Posts: 284
Joined: Sun Jul 09, 2017 1:52 pm

Re: Where to take funds for mortgage pay down?

Post by nguy44 » Tue Jun 30, 2020 2:36 pm

simplesimon wrote:
Tue Jun 30, 2020 1:25 pm
berg wrote:
Tue Jun 30, 2020 1:17 pm
To refinance my mortgage to a lower rate, I am paying down the loan about $16,000 so it becomes conforming.

I have two options to fund this:
  • Break one of my emergency fund CDs, Ally 5 year @ 3%, scheduled to mature in September 2023
    Sell from my ~$411k taxable account, I have tax losses that would offset gains (I have purchased $344k and $68k are gains if it matters)
If I sold from efund, it would drop my efund to my target of $50k to $36k until I replenished. Plus I'd be breaking that CD (which now is higher than my new mortgage at 2.75%!!).

Honestly not sure which way to go. Though part of me thinks funding a loan isnt an emergency fund event and logically taking money from long term investments to pay down the loan feels more like transferring money from one long term bucket to another. But money is fungible, so I don't know! Am I missing anything?

Thanks!
Sell off the highest cost basis lots in the taxable account and be done with it.
I agree with this. In my view, this is not an "emergency", and you likely will not see 3% return on cash for a long, long while. You have tax losses so little or no impact from a tax perspective.

Topic Author
berg
Posts: 292
Joined: Mon Mar 18, 2013 8:43 pm

Re: Where to take funds for mortgage pay down?

Post by berg » Tue Jun 30, 2020 3:12 pm

Thanks! Makes sense to me and was my plan, but wanted to sanity check.

At age 37 and a taxable account that I opened seven years ago -- this is my first time selling. So it feels weird! But feels like especially no big deal given I am just moving the money from a long term investment account to home equity.

aristotelian
Posts: 7622
Joined: Wed Jan 11, 2017 8:05 pm

Re: Where to take funds for mortgage pay down?

Post by aristotelian » Tue Jun 30, 2020 4:32 pm

I would be inclined to sell from taxable, but you could be giving up an opportunity cost since the tax loss would otherwise offset income at your marginal rate. Would need to work through the math and compare to the interest you would be giving up by breaking the CD. Of course, this is why you don't want your EF to be in CDs or long bonds.

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