Pay off mortgage with sale of taxable account assets?

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Silk McCue
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Re: Pay off mortgage with sale of taxable account assets?

Post by Silk McCue » Sat Aug 31, 2019 6:01 am

gblack wrote:
Sat Aug 31, 2019 1:08 am
New here, but surprised how many people are against paying off mortgage. I'd do it in your situation, particularly if that's what your gut says.
...
Welcome to Bogleheads!

I would encourage you to read each of the responses provided to gain insight as to why people would caution against paying off the mortgage. The first thing I would tell you is to never rely on "what your gut says" as that is an emotional response is a poor substitute for reasoned analysis and a good education. Depending on your age you may not have personally been laid off unexpectedly, experienced recessions, dramatic market turn downs, a crash in the housing market and the list goes on. No fear in those statements, just a recognition that the future is never certain and making sound decisions today can mitigate the impacts of some of those unexpected events.

Cheers

Bacchus01
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Re: Pay off mortgage with sale of taxable account assets?

Post by Bacchus01 » Sat Aug 31, 2019 7:12 am

grabiner wrote:
Fri Aug 30, 2019 3:03 pm
hightower wrote:
Fri Aug 30, 2019 7:02 am
Because if you distrust stocks due to the fact that their value changes, then you should REALLY distrust real estate. I hate to burst the bubble for you, but your home value changes all the time too. You just don't realize it because no one is advertising it's value on TV all day and you really don't know what it's truly worth until you try to sell it. And it can crash just as hard as the stock market. The reason I invest in stocks is not because I have a "fundamental trust" of them, but because it's the most diverse investment I can make. Putting all of your investable money into just one home at an early age is similar to putting all of your money into just one stock (not a mutual fund, but an actual individual company). It's very risky.
However, the risk doesn't depend on whether you have a mortgage. If your $400K home loses 20% of its value, your net worth declines by $80K, whether you have a $240K mortgage (so that you lost half your equity) or no mortgage (so that you lost 20% of your equity). It does depend on how much of your net worth is in the home, but that is not changed if you sell investments to pay off a mortgage.

A home is also less risky in this sense, because you can continue to live in it. If you own a home and home prices decline, your home still provides you just as much housing. If you own stocks and stock prices decline, your stocks can buy less and your standard of living will decline.

This is why it makes sense for many people to buy an expensive home with a mortgage, while it makes much less sense for most investors to buy a lot of stock on margin (or a leveraged stock fund, to avoid margin calls).
There is a huge risk that if home values decline your mortgage company calls the loan you are upside down on.

hightower
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Re: Pay off mortgage with sale of taxable account assets?

Post by hightower » Sat Aug 31, 2019 7:30 am

grabiner wrote:
Fri Aug 30, 2019 3:03 pm

A home is also less risky in this sense, because you can continue to live in it. If you own a home and home prices decline, your home still provides you just as much housing. If you own stocks and stock prices decline, your stocks can buy less and your standard of living will decline.
The OP is in his 30s. A paid off home will continue to provide housing yes, but it will not help him build wealth, which is what he needs. He's not going to be selling stocks if the stock market declines, he'll ideally continue to buy more stocks and hold on to them until he stops working some day. Therefore, there's no decline in his standard of living.
Even if we were talking about someone who is retired, a paid off home doesn't provide income for living expenses. You have to own stocks/bonds for that or have some sort of passive income from elsewhere. Ideally you should buy them early in your life so that there is plenty of time for compounding to occur so that you get the most bang for your buck when it comes time to sell them in retirement.

hightower
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Re: Pay off mortgage with sale of taxable account assets?

Post by hightower » Sat Aug 31, 2019 7:43 am

gblack wrote:
Sat Aug 31, 2019 1:08 am
New here, but surprised how many people are against paying off mortgage. I'd do it in your situation, particularly if that's what your gut says.

With no housing payment making 200K, you'll replenish the taxable account in no time.

What type of money emergency are people imagining where 150K cushion after 30K emergency fund isn't enough? Again...with no housing payment.

Worst comes to worst, you can take out a 2nd mortgage, sell the house, or take a 401k loan, but it'll never come to that.

Pay it off. You're debt free with like 780K liquid and nearly 1.2 net worth in your 30s. You're winning.
It's not that people are against paying off a mortgage, it's that we're against selling investments at such a young age to pay off a mortgage. It's not going to really gain him anything to do so, but it will cost him a lot in lost opportunity as well as taxes on short term and long term capital gains. There's just no good reason to do it now. If he were 59 and had significantly more socked away already and it was all going to be taxed at long term capital gains rate, then it would be a different story. In my opinion, it's better to pay it off slowly and keep his money invested.
However, with that being said, he's doing quite well overall and if his worst financial mistake in life is paying off a mortgage early with money from a taxable account, he'll still be more than alright.

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Watty
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Re: Pay off mortgage with sale of taxable account assets?

Post by Watty » Sat Aug 31, 2019 7:47 am

Bacchus01 wrote:
Sat Aug 31, 2019 7:12 am
grabiner wrote:
Fri Aug 30, 2019 3:03 pm
hightower wrote:
Fri Aug 30, 2019 7:02 am
Because if you distrust stocks due to the fact that their value changes, then you should REALLY distrust real estate. I hate to burst the bubble for you, but your home value changes all the time too. You just don't realize it because no one is advertising it's value on TV all day and you really don't know what it's truly worth until you try to sell it. And it can crash just as hard as the stock market. The reason I invest in stocks is not because I have a "fundamental trust" of them, but because it's the most diverse investment I can make. Putting all of your investable money into just one home at an early age is similar to putting all of your money into just one stock (not a mutual fund, but an actual individual company). It's very risky.
However, the risk doesn't depend on whether you have a mortgage. If your $400K home loses 20% of its value, your net worth declines by $80K, whether you have a $240K mortgage (so that you lost half your equity) or no mortgage (so that you lost 20% of your equity). It does depend on how much of your net worth is in the home, but that is not changed if you sell investments to pay off a mortgage.

A home is also less risky in this sense, because you can continue to live in it. If you own a home and home prices decline, your home still provides you just as much housing. If you own stocks and stock prices decline, your stocks can buy less and your standard of living will decline.

This is why it makes sense for many people to buy an expensive home with a mortgage, while it makes much less sense for most investors to buy a lot of stock on margin (or a leveraged stock fund, to avoid margin calls).
There is a huge risk that if home values decline your mortgage company calls the loan you are upside down on.
In the US mortgages are not callable.

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CyclingDuo
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Re: Pay off mortgage with sale of taxable account assets?

Post by CyclingDuo » Sat Aug 31, 2019 9:55 am

WhiteLightning wrote:
Wed Aug 28, 2019 9:03 pm
stan1 - That is actually pretty much what we are currently doing. For the past 3 years, we have put an additional $22k per year towards the principal of the mortgage(this is what is left over after tax advantaged contributions). Assuming we would continue to do that every year, we would have the mortgage paid off in about 6 or 7 years.

My wife and I are both just ready to be done with the mortgage. I guess we are just getting too impatient to wait the 6-7 years.
Sounds like you are targeting the good old boy's recommendation...

Dave Ramsey Baby Step 6: Pay Off Your Home Early

Bogleheads love Dave Ramsey! :mrgreen: :shock: :twisted:

If you are currently throwing $22K additional per year towards the principal on top of your scheduled PITI payment, if you pay off the remaining mortgage using your taxable brokerage account assets - you will have the $22K + the PI- portion of your current PITI available to invest back into the taxable brokerage account while being entirely debt free. Whether you continue to pay it off as you are and be done with it in 6-7 years, or you do it in one fell swoop, or in chunks - it's hard to argue against the reality that you are in excellent shape doing either.

Everyone can relate to feeling impatient when it comes to additional principal payments on mortgage debt. Even when paying additional principal, it sometimes feels like dipping water out of the ocean with a teaspoon, or cup, or bucket, or name your measuring device here: ________________ .

You might feel a bit of the same for a while going in the other direction to build back the taxable brokerage account if you take the chunk out to pay it all off, and then pour the $22K + PI- portion of your current PITI back into that account.

In other words, patience will be required in either direction.

So the question remains, how long will it take for you to go to Nashville to do your debt free scream and order your matching t-shirts with the slogan? :P

"Where debt is dumb, cash is king, and the paid-off home mortgage has taken the place of the BMW as the status symbol of choice."
"Everywhere is within walking distance if you have the time." ~ Steven Wright

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willthrill81
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Re: Pay off mortgage with sale of taxable account assets?

Post by willthrill81 » Sat Aug 31, 2019 10:03 am

CyclingDuo wrote:
Sat Aug 31, 2019 9:55 am
Bogleheads love Dave Ramsey!
His advice regarding getting out of debt is usually pretty good, especially for his audience (i.e. those without a lot of financial knowledge and who have often demonstrated that they can't utilize debt effectively).

His investment advice is, at best, shaky.

His retirement spending advice is absolutely horrific.

Thankfully, he seems to spend most of his time opining about debt.
“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

shess
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Re: Pay off mortgage with sale of taxable account assets?

Post by shess » Sat Aug 31, 2019 10:27 am

WhiteLightning wrote:
Wed Aug 28, 2019 8:31 pm
My wife and I are seriously considering paying off the remainder of our mortgage with proceeds from selling a portion of the assets in our taxable brokerage account. The mortgage is the only debt we have left and we REALLY like the idea of being completely debt free.
Once Upon A Time, I was getting nervous about the stock market and/or the economy, and had a large position in an employer stock which had outrun the market in general. So I sold some of that stock to help me sleep easier, and used the proceeds to start paying down our mortgage to also help me sleep easier. It was a lovely dynamic, even kind of exciting. Not having a mortgage has been much nicer than I'd have imagined.

Of course, that was all in 2013. General market is up 50% since then, the specific stock in question is up 100% since then. So, in one sense, it wasn't the right choice. But I don't regret it at all, it really was satisfying to get that payment behind us.

ALL THAT SAID, I don't think I'd have decided to sell shares simply to pay down the mortgage, unless there were shares which could be harvested with reasonably small gains. Instead I'd have shifted cashflow and waited it out. Having the additional driver of needing to diversify was what put me over the top.

Though ... I guess it also depends on how you're sleeping these days :-).

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Re: Pay off mortgage with sale of taxable account assets?

Post by AlohaJoe » Sat Aug 31, 2019 10:30 am

gblack wrote:
Sat Aug 31, 2019 1:08 am
With no housing payment making 200K, you'll replenish the taxable account in no time.
If they can replenish the taxable account in no time then they can pay off the mortgage in no time the same way, though.

They said it'll take 6 or 7 years to pay off the mortgage. So it would also take the same amount of time to replenish the taxable account. That means losing out on $60,000 in gains while replenishing the account.

So the overall cost of paying off the $250,000 mortgage is around $320,000, once you factor in capital gains taxes from liquidating.

It would take them 8-9 years to get their taxable account back to where it would have been without paying off the mortgage.

gblack
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Re: Pay off mortgage with sale of taxable account assets?

Post by gblack » Sat Aug 31, 2019 3:14 pm

I read the responses. I agree one should not follow "your gut" unilaterally, particularly if you are doing something foolish can be proven to be mathematically stupid.

But this situation doesn't meet that criteria. It seems more like a 50-50 proposition and in those cases, following your gut isn't a terrible choice as you gut is thousands of years of evolution helping you make a decision. I don't think it is demonstrable that paying off the mortgage in his case is foolish. In fact, it would only take a low performing stock market or a major correction or crash to make it work out mathematically in his favor (lower than his mortgage interest payments) plus he dollar cost average in his former mortgage payment.

Also, I imagine there is a "psychic benefit" to being debt free, especially because he expressed it.

My main point is that it doesn't strike me as an obviously bad thing to do given it is his stated preference.

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Re: Pay off mortgage with sale of taxable account assets?

Post by Big Dog » Sat Aug 31, 2019 3:23 pm

Admiral wrote:
Thu Aug 29, 2019 7:00 am
I would not pay the CG tax to save the interest (which is low to begin with). If it's bothering you for some reason, use cash flow and get it paid off in a few years.
Or, Refi to a 15 year. Paying it off and losing that financial flexibility makes no sense to me. (you are young and making good money, but 'stuff' in life happens.....)

Silk McCue
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Re: Pay off mortgage with sale of taxable account assets?

Post by Silk McCue » Sat Aug 31, 2019 3:26 pm

gblack wrote:
Sat Aug 31, 2019 3:08 pm

... following your gut isn't a terrible choice as you gut is thousands of years of evolution helping you make a decision.
...
Fight or flight is one thing but this just doesn’t hold up. Gut reactions are more like wishful/hopeful thinking in matters such as this. We have no ancestral provided power to make complex decisions like this with any better odds than the flip of a coin. It is crucial to fight emotional and gut intuition in these matters. They add very little other than perceived validation at the wisdom of the decision in the moment. Regret often follows further down the road.

Cheers

EnjoyIt
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Re: Pay off mortgage with sale of taxable account assets?

Post by EnjoyIt » Sat Aug 31, 2019 3:27 pm

gblack wrote:
Sat Aug 31, 2019 3:14 pm
I read the responses. I agree one should not follow "your gut" unilaterally, particularly if you are doing something foolish can be proven to be mathematically stupid.

But this situation doesn't meet that criteria. It seems more like a 50-50 proposition and in those cases, following your gut isn't a terrible choice as you gut is thousands of years of evolution helping you make a decision. I don't think it is demonstrable that paying off the mortgage in his case is foolish. In fact, it would only take a low performing stock market or a major correction or crash to make it work out mathematically in his favor (lower than his mortgage interest payments) plus he dollar cost average in his former mortgage payment.

Also, I imagine there is a "psychic benefit" to being debt free, especially because he expressed it.

My main point is that it doesn't strike me as an obviously bad thing to do given it is his stated preference.
I believe you are not seeing the math if you see this as 50/50. The OP plan is a financial mistake with the benefit of "feeling good." If OP was rich then sure, pay some cash to feel good. Unfortunately OP is not rich and this option of feeling good will delay financial independence by a few years.

The way I see it. Selling equities and paying taxes to satisfy the gut will cost OP anywhere between 1.5-3 years of needing to toil at his/her current job before reaching financial independence and being able to retire. To me, 1.5-3 years is a very big deal.

Wricha
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Re: Pay off mortgage with sale of taxable account assets?

Post by Wricha » Sat Aug 31, 2019 3:53 pm

Quote from previous post

“Putting all of your investable money into just one home at an early age is similar to putting all of your money into just one stock (not a mutual fund, but an actual individual company)”.


First: it not all.
Second: when that individual stock loses value will it keep the rain off your head or will the landlord/bank say it used be worth $400k give the guy a break. (Eight ball says doubtful)

Pay off the mortgage if your gut is telling you do it. I have never meet anyone who regretted that choice. Personally, 25 years later best financial decision I ever make. This assumes you will invest your old morgage payment.

shess
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Re: Pay off mortgage with sale of taxable account assets?

Post by shess » Sat Aug 31, 2019 6:56 pm

Silk McCue wrote:
Sat Aug 31, 2019 3:26 pm
gblack wrote:
Sat Aug 31, 2019 3:08 pm

... following your gut isn't a terrible choice as you gut is thousands of years of evolution helping you make a decision.
...
Fight or flight is one thing but this just doesn’t hold up. Gut reactions are more like wishful/hopeful thinking in matters such as this. We have no ancestral provided power to make complex decisions like this with any better odds than the flip of a coin. It is crucial to fight emotional and gut intuition in these matters. They add very little other than perceived validation at the wisdom of the decision in the moment. Regret often follows further down the road.
I think the point is that once you've done your due diligence and the decision isn't obvious to you, then following your gut is reasonable. Presumably, if you had found a giant pothole in any of your choices, you'd have removed that option from the table, so what's left is just different degrees of acceptable. In that case, following your own gut feeling is sure better than following someone _else's_ gut feeling, which is basically what happens when you survey an Internet forum to decide what to do!

{Sure, the OP's process of making the decision could be flawed - in which case, question the process, not the outcome.}

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Re: Pay off mortgage with sale of taxable account assets?

Post by JGoneRiding » Sat Aug 31, 2019 7:56 pm

Admiral wrote:
Thu Aug 29, 2019 7:00 am
I would not pay the CG tax to save the interest (which is low to begin with). If it's bothering you for some reason, use cash flow and get it paid off in a few years.
I agree why would you pay 15% to save a measly 3.6%? Just keep cash flowing it (which I wouldn't do either but it should make you feel better.

gblack
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Re: Pay off mortgage with sale of taxable account assets?

Post by gblack » Sat Aug 31, 2019 11:12 pm

My point is there are too many variables for anyone to assert this is objectively a bad decision. Avoiding capital gains and letting the money compound are good considerations. But if the money is to be spent someday, it will still be taxed (and maybe at a higher rate). Maybe paying off mortgage allows for a more aggressive and better returning portfolio. A lower emergency fund. Highly monthly investing. A bold career move with a big payoff. All of this matters considerably more than the possible benefits of leveraging your mortgage loan into the stock market.

orhkaf
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Re: Pay off mortgage with sale of taxable account assets?

Post by orhkaf » Sun Sep 01, 2019 3:50 am

I wouldn’t touch taxable. You make enough to cash flow it within 3-4 years if your savings rate is high enough. The thought of paying 60k in taxes is horrendous!

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Re: Pay off mortgage with sale of taxable account assets?

Post by grabiner » Sun Sep 01, 2019 8:37 am

orhkaf wrote:
Sun Sep 01, 2019 3:50 am
I wouldn’t touch taxable. You make enough to cash flow it within 3-4 years if your savings rate is high enough. The thought of paying 60k in taxes is horrendous!
And this is a very reasonable strategy if you have that cash flow. Continue to max out your retirement accounts, and spend the dividends from taxable accounts, selling only stocks which have little or no capital gain. You will get most of the interest savings from paying off the mortgage now, but avoid the capital-gains tax.
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stan1
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Re: Pay off mortgage with sale of taxable account assets?

Post by stan1 » Sun Sep 01, 2019 9:03 am

orhkaf wrote:
Sun Sep 01, 2019 3:50 am
I wouldn’t touch taxable. You make enough to cash flow it within 3-4 years if your savings rate is high enough. The thought of paying 60k in taxes is horrendous!
Reading OP's post it is $60K in capital gains, not $60K in capital gains taxes. So actual tax owed would be maybe $7-12K depending on state tax rates. That's easy for OP to figure out. The bigger choice is about the benefits of liquidity which I think is sometimes underestimated by people who want to prepay their living expenses and be debt free before they are financially independent. To me paying off the mortgage is how you celebrate achieving financial independence -- not a step in how you get to financial independence.

EnjoyIt
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Re: Pay off mortgage with sale of taxable account assets?

Post by EnjoyIt » Sun Sep 01, 2019 9:25 am

stan1 wrote:
Sun Sep 01, 2019 9:03 am
orhkaf wrote:
Sun Sep 01, 2019 3:50 am
I wouldn’t touch taxable. You make enough to cash flow it within 3-4 years if your savings rate is high enough. The thought of paying 60k in taxes is horrendous!
Reading OP's post it is $60K in capital gains, not $60K in capital gains taxes. So actual tax owed would be maybe $7-12K depending on state tax rates. That's easy for OP to figure out. The bigger choice is about the benefits of liquidity which I think is sometimes underestimated by people who want to prepay their living expenses and be debt free before they are financially independent. To me paying off the mortgage is how you celebrate achieving financial independence -- not a step in how you get to financial independence.
Important to mention that paying off a mortgage this early and paying capital gains in the process will delay financial independence. It is all backwards over here.

EnjoyIt
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Re: Pay off mortgage with sale of taxable account assets?

Post by EnjoyIt » Sun Sep 01, 2019 9:30 am

gblack wrote:
Sat Aug 31, 2019 11:12 pm
My point is there are too many variables for anyone to assert this is objectively a bad decision. Avoiding capital gains and letting the money compound are good considerations. But if the money is to be spent someday, it will still be taxed (and maybe at a higher rate). Maybe paying off mortgage allows for a more aggressive and better returning portfolio. A lower emergency fund. Highly monthly investing. A bold career move with a big payoff. All of this matters considerably more than the possible benefits of leveraging your mortgage loan into the stock market.
If savings are well diversified, a family can live on $100k/yr and pay $0 in taxes.
This decision can cost OP anywhere from 1.5-3 years in delaying financial independence. I don't know about you, but I think even a 1 year delay matters significantly.

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Re: Pay off mortgage with sale of taxable account assets?

Post by willthrill81 » Sun Sep 01, 2019 9:55 am

EnjoyIt wrote:
Sun Sep 01, 2019 9:30 am
gblack wrote:
Sat Aug 31, 2019 11:12 pm
My point is there are too many variables for anyone to assert this is objectively a bad decision. Avoiding capital gains and letting the money compound are good considerations. But if the money is to be spent someday, it will still be taxed (and maybe at a higher rate). Maybe paying off mortgage allows for a more aggressive and better returning portfolio. A lower emergency fund. Highly monthly investing. A bold career move with a big payoff. All of this matters considerably more than the possible benefits of leveraging your mortgage loan into the stock market.
If savings are well diversified, a family can live on $100k/yr and pay $0 in taxes.
It's certainly possible. You can 'fill' the standard deduction with tax-deferred withdrawals, sell enough from taxable accounts to stay in the 0% LTCG rate, and fill in the rest with Roth withdrawals.

But the 'catch' is that this strategy involved paying the taxes on the front-end, with the exception of the tax-deferred assets used to fund the standard deduction. The funds that went into taxable accounts and Roth accounts have already been taxed.

Paying 0% in taxes in retirement does not necessarily maximize after-tax wealth.
EnjoyIt wrote:
Sun Sep 01, 2019 9:25 am
Important to mention that paying off a mortgage this early and paying capital gains in the process will delay financial independence.
Yes, it probably will. If the OP understands this thoroughly and still chooses that path, so be it. But if achieving financial independence as soon as possible is the goal, then paying off the mortgage with taxable funds is sub-optimal.
Last edited by willthrill81 on Sun Sep 01, 2019 9:58 am, edited 1 time in total.
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TxAg
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Re: Pay off mortgage with sale of taxable account assets?

Post by TxAg » Sun Sep 01, 2019 9:57 am

Don't do it

EnjoyIt
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Re: Pay off mortgage with sale of taxable account assets?

Post by EnjoyIt » Sun Sep 01, 2019 10:25 am

willthrill81 wrote:
Sun Sep 01, 2019 9:55 am
EnjoyIt wrote:
Sun Sep 01, 2019 9:30 am
gblack wrote:
Sat Aug 31, 2019 11:12 pm
My point is there are too many variables for anyone to assert this is objectively a bad decision. Avoiding capital gains and letting the money compound are good considerations. But if the money is to be spent someday, it will still be taxed (and maybe at a higher rate). Maybe paying off mortgage allows for a more aggressive and better returning portfolio. A lower emergency fund. Highly monthly investing. A bold career move with a big payoff. All of this matters considerably more than the possible benefits of leveraging your mortgage loan into the stock market.
If savings are well diversified, a family can live on $100k/yr and pay $0 in taxes.
It's certainly possible. You can 'fill' the standard deduction with tax-deferred withdrawals, sell enough from taxable accounts to stay in the 0% LTCG rate, and fill in the rest with Roth withdrawals.

But the 'catch' is that this strategy involved paying the taxes on the front-end, with the exception of the tax-deferred assets used to fund the standard deduction. The funds that went into taxable accounts and Roth accounts have already been taxed.

Paying 0% in taxes in retirement does not necessarily maximize after-tax wealth.
Of course not. Everyone needs to do their own math to see what works for them. For example, my spouse gets a 401k with the potential to do after tax contributions. She maxes out her pre-tax 401k, maxes out her HSA, and then does the full after tax 401k as well as back door Roth. She also has a little bit of savings in a taxable account. You can easily imagine a person like this retiring at 55 and paying $0 in taxes while still being maximally efficient on tax savings in the working years.

Understanding the basic tax code has significant value.

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Re: Pay off mortgage with sale of taxable account assets?

Post by JoeRetire » Sun Sep 01, 2019 10:43 am

Bacchus01 wrote:
Sat Aug 31, 2019 7:12 am
There is a huge risk that if home values decline your mortgage company calls the loan you are upside down on.
Sorry, you are incorrect. There is no huge risk.

A bank could only call the loan if that right is disclosed in the terms documents. That almost never happens. Check your load documents. And the odds are vast that this simply isn't going to happen, even if permitted, unless you fail to meet the loan's terms.

It would be silly to base any financial decisions on this worry these days. As long as you are able to make your payments, there is no risk.

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Re: Pay off mortgage with sale of taxable account assets?

Post by CyclingDuo » Mon Sep 02, 2019 9:19 am

willthrill81 wrote:
Sat Aug 31, 2019 10:03 am
CyclingDuo wrote:
Sat Aug 31, 2019 9:55 am
Bogleheads love Dave Ramsey!
His advice regarding getting out of debt is usually pretty good, especially for his audience (i.e. those without a lot of financial knowledge and who have often demonstrated that they can't utilize debt effectively).

His investment advice is, at best, shaky.

His retirement spending advice is absolutely horrific.

Thankfully, he seems to spend most of his time opining about debt.
Dang it, you left out my emojis which I thought captured the full gamut of BH's feelings on Dave Ramsey.

Bogleheads love Dave Ramsey! :mrgreen: :shock: :twisted:

I had never even heard of him until I joined the forums here. Just for fun and curiosity to see what the root of all of the emotional responses that he invokes here on the forums was coming from, I have been listening to some of his shows in the past few months during one of my commutes to see what all the hubbub was about regarding his opinions. 8-)

I haven't really heard him give much of any investment advice outside of his dogma of 15% going into mutual funds in the retirement plan at whatever appropriate baby step that is, contributing to a Roth IRA and an HSA if one qualifies, etc... . He may have changed his investing advice tune from years ago, I don't know, but he continually claims that it is not his speciality.

I don't know what cross section of America his callers represent - or how they screen the calls before choosing who gets to be live on the air - but it's pretty depressing to hear story after story of their credit card debt, auto loan debt, student loan debt, divorce, gambling woes, and how many have income that is not enough to service all of that debt. Then I walk into my part-time job where many of the workers are in their 20's and 30's with the burden of student loan debt, auto loan debt (parking lot is full of some very, very fancy wheels compared to what I think one should be driving at that age and debt level), fancy clothes and toys, and I see the need for what Ramsey does. Then I walk into my part-time adjunct teaching jobs and hear all the woes of students with the amount of student loan debt they are incurring to attend classes, and it becomes clearer and clearer to me how unprepared individual families are to fund their children's education (most likely because of their own debt woes). It's been around far longer than I've been teaching for the past 17 years, but for lack of a better description, I am acutely aware of it now.

That is all certainly not on topic from the OP's post regarding mortgage, but at least Ramsey agrees that the one type of consumer debt he is okay with is the home mortgage. It's just a question of the order of paying off the mortgage that the debate creates. Before wealth is built, after wealth is built, or simultaneously.

The OP has all three of those options which is a great place to find oneself in financially. Especially compared to the majority...
"Everywhere is within walking distance if you have the time." ~ Steven Wright

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willthrill81
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Re: Pay off mortgage with sale of taxable account assets?

Post by willthrill81 » Mon Sep 02, 2019 9:34 am

CyclingDuo wrote:
Mon Sep 02, 2019 9:19 am
willthrill81 wrote:
Sat Aug 31, 2019 10:03 am
CyclingDuo wrote:
Sat Aug 31, 2019 9:55 am
Bogleheads love Dave Ramsey!
His advice regarding getting out of debt is usually pretty good, especially for his audience (i.e. those without a lot of financial knowledge and who have often demonstrated that they can't utilize debt effectively).

His investment advice is, at best, shaky.

His retirement spending advice is absolutely horrific.

Thankfully, he seems to spend most of his time opining about debt.
Dang it, you left out my emojis which I thought captured the full gamut of BH's feelings on Dave Ramsey.

Bogleheads love Dave Ramsey! :mrgreen: :shock: :twisted:

I had never even heard of him until I joined the forums here. Just for fun and curiosity to see what the root of all of the emotional responses that he invokes here on the forums was coming from, I have been listening to some of his shows in the past few months during one of my commutes to see what all the hubbub was about regarding his opinions. 8-)

I haven't really heard him give much of any investment advice outside of his dogma of 15% going into mutual funds in the retirement plan at whatever appropriate baby step that is, contributing to a Roth IRA and an HSA if one qualifies, etc... . He may have changed his investing advice tune from years ago, I don't know, but he continually claims that it is not his speciality.

I don't know what cross section of America his callers represent - or how they screen the calls before choosing who gets to be live on the air - but it's pretty depressing to hear story after story of their credit card debt, auto loan debt, student loan debt, divorce, gambling woes, and how many have income that is not enough to service all of that debt. Then I walk into my part-time job where many of the workers are in their 20's and 30's with the burden of student loan debt, auto loan debt (parking lot is full of some very, very fancy wheels compared to what I think one should be driving at that age and debt level), fancy clothes and toys, and I see the need for what Ramsey does. Then I walk into my part-time adjunct teaching jobs and hear all the woes of students with the amount of student loan debt they are incurring to attend classes, and it becomes clearer and clearer to me how unprepared individual families are to fund their children's education (most likely because of their own debt woes). It's been around far longer than I've been teaching for the past 17 years, but for lack of a better description, I am acutely aware of it now.

That is all certainly not on topic from the OP's post regarding mortgage, but at least Ramsey agrees that the one type of consumer debt he is okay with is the home mortgage. It's just a question of the order of paying off the mortgage that the debate creates. Before wealth is built, after wealth is built, or simultaneously.

The OP has all three of those options which is a great place to find oneself in financially. Especially compared to the majority...
When it comes to his advice regarding consumer debt, I agree that it's spot on for many, perhaps most, people. It's good to hear that this is most of what he doles out these days.

His investment advice entails an odd mix of 'aggressive growth, growth, etc.' funds, which isn't necessarily terrible, but he recommends that listeners go through his ELPs (who pay him to gain that status) and buy loaded mutual funds.

He's stated that 8% withdrawals in retirement are safe. :oops:
“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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CyclingDuo
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Re: Pay off mortgage with sale of taxable account assets?

Post by CyclingDuo » Mon Sep 02, 2019 10:27 am

willthrill81 wrote:
Mon Sep 02, 2019 9:34 am
When it comes to his advice regarding consumer debt, I agree that it's spot on for many, perhaps most, people. It's good to hear that this is most of what he doles out these days.

His investment advice entails an odd mix of 'aggressive growth, growth, etc.' funds, which isn't necessarily terrible, but he recommends that listeners go through his ELPs (who pay him to gain that status) and buy loaded mutual funds.

He's stated that 8% withdrawals in retirement are safe. :oops:
Okay, now I'm up to speed with your thoughts.

Yes, the continuous commercials for ELP's, insurance, tax accountants, real estate agents, window blinds, Dollar Rental Car, books, podcasts, etc... all seem to be part of his "package". At least when it comes to retirement plans that are under everyone's employer plan via a 401k/403b/457b account - in terms of the portions of his shows I have caught to and from work in my commute - he just says pick low cost mutual funds (routinely mentions an S&P 500 index fund, and an international fund if they are available within the plan).

Yes, I agree on the latter about withdrawals in retirement being advice that is circumspect. I believe I did hear him quote higher returns several times than what we all would say is advisable on the BH forums during the accumulation phase, and a higher withdrawal rate (don't hold me to it, but I think I actually heard him tout a 10% withdrawal rate a time or two to a pair of callers when he was making an analogy or two) which we all know is rather optimistic and wise to avoid. The good news is, his sidekick Chris Hogan is the retirement specialist who Dave defers to these days, and Chris sticks to the 4% withdrawal rate rule. Most likely, over the years due to criticism, Dave has brought on other personalities who specialize in the things that he does not to round out the content and advice for his minions. Typical Hogan is here:

https://www.daveramsey.com/blog/post-retirement-plan

Ramsey himself seems to be great at real estate, living on less than you make, and debt which he knows are his specialities when it comes to giving advice. Mastering those topics when it comes to giving advice is what appears to be his value in terms of what he brings to the table, so I won't fault him on those subjects. He has provided some nice rants on consumerism, student loan debt, the "middle class", and political thoughts over the past few months on the shows that I tuned in to the radio from time to time that range from solid opinion to so embarrassing I quickly change the channel to hear some nice music.

I'm not apologetic for him, just providing feedback on the short 30 minute sessions I have heard him on the radio in the past few months driving to and from one of my jobs. Probably the only thing intriguing to me about him at this point is that my father (RIP), who was a minister and son of a banker, specialized in running a balanced budget for every church where he preached throughout his career, had a lot of similar fiscal views in terms of religion, debt, and giving. So it's a familiar old sermon I've heard many times before since being knee-high to a grasshopper. In other words, nothing too new in a message I've heard for decades outside of a different voice speaking it. One certainly needs to toss out the bad part(s) of the advice and accept the good part(s), no matter who the messenger is.
"Everywhere is within walking distance if you have the time." ~ Steven Wright

eddiek
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Re: Pay off mortgage with sale of taxable account assets?

Post by eddiek » Mon Sep 09, 2019 11:54 am

UpperNwGuy wrote:
Thu Aug 29, 2019 9:10 am
Don’t sell your taxable portfolio just to pay a mortgage. It may make you feel good, but your financial position will be worse.
This is sound advice and short-n-sweet, to the point.

Allow me express an alternate view: people like to take vacations. people like to spend boatloads of cash on those vacations. The financial benefits of said vacations are pretty much NIL, yet people at all income levels do it all the time, and very few are promoting not taking vacations as a money-saver. Most agree that vacations make us "feel good" and are thus worth it.

This is why, the answer to your question is in your heart, not your financial acumen. Would paying off debt make you feel good? Good enough to take a mild financial hit to do so? If so, do it, and don't look back.

Folks I know who have done it tend to feel really good about it and none have regrets or care about missing out on a few extra investment dollars.

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Re: Pay off mortgage with sale of taxable account assets?

Post by EnjoyIt » Mon Sep 09, 2019 12:08 pm

eddiek wrote:
Mon Sep 09, 2019 11:54 am
UpperNwGuy wrote:
Thu Aug 29, 2019 9:10 am
Don’t sell your taxable portfolio just to pay a mortgage. It may make you feel good, but your financial position will be worse.
This is sound advice and short-n-sweet, to the point.

Allow me express an alternate view: people like to take vacations. people like to spend boatloads of cash on those vacations. The financial benefits of said vacations are pretty much NIL, yet people at all income levels do it all the time, and very few are promoting not taking vacations as a money-saver. Most agree that vacations make us "feel good" and are thus worth it.

This is why, the answer to your question is in your heart, not your financial acumen. Would paying off debt make you feel good? Good enough to take a mild financial hit to do so? If so, do it, and don't look back.

Folks I know who have done it tend to feel really good about it and none have regrets or care about missing out on a few extra investment dollars.
If you run the numbers on this decision over the life of an investor, it can be worth far more than a few extra dollars. Depending on the size of the mortgage, the rate, and how lucky one is based on market returns that figure is in the 100's of thousands range. It can also go poorly for the same investor.

Based on your comments, I would rather take an extra vacation to feel good while still holding unto the mortgage.

eddiek
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Re: Pay off mortgage with sale of taxable account assets?

Post by eddiek » Mon Sep 09, 2019 12:34 pm

EnjoyIt wrote:
Mon Sep 09, 2019 12:08 pm

If you run the numbers on this decision over the life of an investor, it can be worth far more than a few extra dollars. Depending on the size of the mortgage, the rate, and how lucky one is based on market returns that figure is in the 100's of thousands range. It can also go poorly for the same investor.

Based on your comments, I would rather take an extra vacation to feel good while still holding unto the mortgage.
If you invest in stocks instead of bonds, and you're lucky, it can amount to 100's of thousands difference of market returns. Does that mean we should never invest in anything but stocks?

If you spend 10k/yr on vacations every year, that can have 100's of thousands difference of market returns in a long-run scenario. Does that mean you should never take vacations?

If you insist on focusing on how many dollars you think it might be, then I can assure you, you're missing the point.

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Re: Pay off mortgage with sale of taxable account assets?

Post by EnjoyIt » Mon Sep 09, 2019 12:42 pm

eddiek wrote:
Mon Sep 09, 2019 12:34 pm
EnjoyIt wrote:
Mon Sep 09, 2019 12:08 pm

If you run the numbers on this decision over the life of an investor, it can be worth far more than a few extra dollars. Depending on the size of the mortgage, the rate, and how lucky one is based on market returns that figure is in the 100's of thousands range. It can also go poorly for the same investor.

Based on your comments, I would rather take an extra vacation to feel good while still holding unto the mortgage.
If you invest in stocks instead of bonds, and you're lucky, it can amount to 100's of thousands difference of market returns. Does that mean we should never invest in anything but stocks?

If you spend 10k/yr on vacations every year, that can have 100's of thousands difference of market returns in a long-run scenario. Does that mean you should never take vacations?

If you insist on focusing on how many dollars you think it might be, then I can assure you, you're missing the point.
if you insist one investing with your feelings, maybe you are missing the point.

eddiek
Posts: 9
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Re: Pay off mortgage with sale of taxable account assets?

Post by eddiek » Mon Sep 09, 2019 1:52 pm

EnjoyIt wrote:
Mon Sep 09, 2019 12:42 pm
eddiek wrote:
Mon Sep 09, 2019 12:34 pm
EnjoyIt wrote:
Mon Sep 09, 2019 12:08 pm

If you run the numbers on this decision over the life of an investor, it can be worth far more than a few extra dollars. Depending on the size of the mortgage, the rate, and how lucky one is based on market returns that figure is in the 100's of thousands range. It can also go poorly for the same investor.

Based on your comments, I would rather take an extra vacation to feel good while still holding unto the mortgage.
If you invest in stocks instead of bonds, and you're lucky, it can amount to 100's of thousands difference of market returns. Does that mean we should never invest in anything but stocks?

If you spend 10k/yr on vacations every year, that can have 100's of thousands difference of market returns in a long-run scenario. Does that mean you should never take vacations?

If you insist on focusing on how many dollars you think it might be, then I can assure you, you're missing the point.
if you insist one investing with your feelings, maybe you are missing the point.
I really never "insisted" on that. Paying off a mortgage early is a personal decision that goes far beyond dollars and cents. That is all.

EnjoyIt
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Re: Pay off mortgage with sale of taxable account assets?

Post by EnjoyIt » Mon Sep 09, 2019 2:02 pm

eddiek wrote:
Mon Sep 09, 2019 1:52 pm
EnjoyIt wrote:
Mon Sep 09, 2019 12:42 pm
eddiek wrote:
Mon Sep 09, 2019 12:34 pm
EnjoyIt wrote:
Mon Sep 09, 2019 12:08 pm

If you run the numbers on this decision over the life of an investor, it can be worth far more than a few extra dollars. Depending on the size of the mortgage, the rate, and how lucky one is based on market returns that figure is in the 100's of thousands range. It can also go poorly for the same investor.

Based on your comments, I would rather take an extra vacation to feel good while still holding unto the mortgage.
If you invest in stocks instead of bonds, and you're lucky, it can amount to 100's of thousands difference of market returns. Does that mean we should never invest in anything but stocks?

If you spend 10k/yr on vacations every year, that can have 100's of thousands difference of market returns in a long-run scenario. Does that mean you should never take vacations?

If you insist on focusing on how many dollars you think it might be, then I can assure you, you're missing the point.
if you insist one investing with your feelings, maybe you are missing the point.
I really never "insisted" on that. Paying off a mortgage early is a personal decision that goes far beyond dollars and cents. That is all.
Sure, people make personal decisions. Some of those decisions are to their benefit and some to their detriment. In the accumulation phase, if one is not over-leveraged, not about to retire, not wealthy, then paying off a low interest rate mortgage adds risk (yes, paying down a low interest rate mortgage can add risk) and may be harmful to that person's retirement goals.

Don't get me wrong, there are plenty of good scenarios that paying down a low interest rate mortgage is a good idea. But those scenarios are far and few between. Not that I expect you to look for it, but I started a thread several months back that showed how paying down a sub 3% mortgage early is financially the right move for that particular scenario.

You told me I am missing the point when I break it down to dollars and cents. On the other hand, I guess it feels good to be debt free so whatever, risk and financial security be damned.

eddiek
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Re: Pay off mortgage with sale of taxable account assets?

Post by eddiek » Tue Sep 10, 2019 10:00 am

EnjoyIt wrote:
Mon Sep 09, 2019 2:02 pm
Sure, people make personal decisions. Some of those decisions are to their benefit and some to their detriment. In the accumulation phase, if one is not over-leveraged, not about to retire, not wealthy, then paying off a low interest rate mortgage adds risk (yes, paying down a low interest rate mortgage can add risk) and may be harmful to that person's retirement goals.

Don't get me wrong, there are plenty of good scenarios that paying down a low interest rate mortgage is a good idea. But those scenarios are far and few between. Not that I expect you to look for it, but I started a thread several months back that showed how paying down a sub 3% mortgage early is financially the right move for that particular scenario.

You told me I am missing the point when I break it down to dollars and cents. On the other hand, I guess it feels good to be debt free so whatever, risk and financial security be damned.
Not sure why you keep on arguing numbers and scenarios - I am not trying to argue any kind of scenario that makes it financially savvy to do so.
Take a look at the OPs entry. Look at his/her numbers. They are not likely going to experience "harmful", "add risk", "detriment" and "security be damned" (all terms you insist on using for bombastic purposes, I guess) If you read other responses you will see that the consensus seems to be that OP is in great shape, and it's not going to matter much either way. That is why, for this specific instance, I offered my vacation/feels good analogy. Have a great day and no offense I don't want to comment on this anymore so this is my last entry on this post.

EnjoyIt
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Re: Pay off mortgage with sale of taxable account assets?

Post by EnjoyIt » Tue Sep 10, 2019 10:19 am

eddiek wrote:
Tue Sep 10, 2019 10:00 am
EnjoyIt wrote:
Mon Sep 09, 2019 2:02 pm
Sure, people make personal decisions. Some of those decisions are to their benefit and some to their detriment. In the accumulation phase, if one is not over-leveraged, not about to retire, not wealthy, then paying off a low interest rate mortgage adds risk (yes, paying down a low interest rate mortgage can add risk) and may be harmful to that person's retirement goals.

Don't get me wrong, there are plenty of good scenarios that paying down a low interest rate mortgage is a good idea. But those scenarios are far and few between. Not that I expect you to look for it, but I started a thread several months back that showed how paying down a sub 3% mortgage early is financially the right move for that particular scenario.

You told me I am missing the point when I break it down to dollars and cents. On the other hand, I guess it feels good to be debt free so whatever, risk and financial security be damned.
Not sure why you keep on arguing numbers and scenarios - I am not trying to argue any kind of scenario that makes it financially savvy to do so.
Take a look at the OPs entry. Look at his/her numbers. They are not likely going to experience "harmful", "add risk", "detriment" and "security be damned" (all terms you insist on using for bombastic purposes, I guess) If you read other responses you will see that the consensus seems to be that OP is in great shape, and it's not going to matter much either way. That is why, for this specific instance, I offered my vacation/feels good analogy. Have a great day and no offense I don't want to comment on this anymore so this is my last entry on this post.
I won't comment specifically on your comment as I agree that there is absolutely no point to it. I just wanted to say,
"last word." .... I just had to do it....

DaftInvestor
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Re: Pay off mortgage with sale of taxable account assets?

Post by DaftInvestor » Tue Sep 10, 2019 3:50 pm

If you are planning on paying for your child's college I would put some of the money into a 529 - either cash some out and move it yearly - or simply start redirecting new money over - why not let it grow tax free for 20+ years?

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