Would you sell stocks to pay down a mortgage?

[The Synergizer]

Dave Ramsey show.

I don't agree with all of it and what he preaches, but that's his recurring bit of advice. Payoff the house.
You could look at it as you are financing the stocks with the home mortgage and interest... Which you are.

[id10t]

Mortgage takes a large hunk of my monthly income, I would rather be debt free than owe money with that amount sitting in the bank or non-usable investment (so buy hunting land and machine guns). Being debt free would free up a majority of that payment (still have taxes/insurance) and (re)investing when you have the monthly positive cash flow to do so is much easier

[lukeh]

Emotional decision vs. financial decision.

Financial decision is keeping the stocks...although it would help to know what stocks. Are we talking blue chips or some tech startup. I also think you'd be able to refinance down to 5% within the year.

Emotional decision is selling stock and pay it off. Like people keep saying, it feels good.

[KFC911]

If I listen to financial experts ... I can retire in just 17 more years (instead of 17 years ago). It was an emotional decision... and I did EVERYTHING wrong along the way .... maximizing $$$ was never my goal nor did it sway my life choices (for better or worse)... never.

That would be a banker's perspective .

....and I like ice cream more than $$$

[Skip Newsom]

Lots of variables involved...
For me the basics of how interest works is to pay as little as possible, earn as much of it as possible.

If you've gotten good gains in stocks, lock them in by paying off debit even with the cap gains tax. (after doing the math of course and based on your willingness to reduce investments)

We have bought a couple vehicles from stock market gains (thanks Microsoft early on and the S&P 500) and the hit to overall wealth has been more than worth it, plus I simply hate monthly bills.

Front loaded interest on many mortgages bugs me. I'm lucky my wife and I have always been on the same page with debit- charge as much as you like but the CC bill always gets paid in full.
When we were making mortgage payments we would at least make a yearly "extra" payment that went to the original money borrowed and not the interest.

We paid off my/our first home (now a rental) in 10 years, our current home was paid for in 12. That freed up finances for more investing.

I sure have no regrets, being mortgage free seems like a crazy dream but it's absolutely possible with self discipline and living well within your means.
I don't have any issue with driving a older sedan, truck and 911 since they have been paid for for a good long while and kept in good mechanical condition.
"Keeping up with the Jones's" has never been more than a passing wish. I'd rather be financially comfortable driving a 10 year old car, 12 year old truck or a 53 year old 911 than driving a new one that is more the banks than mine.

[red 928]

Lets do some maths:
6.5% interest on a home loan, the majority of the monthly payment is interest which is tax deductible in a primary residence but you said it was a rental.
Assuming the interest is not directly deductible it could still be expensed to offset rental income.
Loss of that write-off could potentially have tax repercussions on that rental income but that can get complicated and has many variables so we're going to ignore that aspect for now.
Assuming a very conservative annual inflation rate of 2 percent would
make the effective interest rate being paid on that loan in the ballpark of 2%.
Maybe more, maybe less.

Even investing very conservatively and diversified, I expect to make on average at lest 10% on equity investments.
Truth be told the average return over the past has been well over that number and LTCG taxes are still reasonable.
So no, I personally would not sell stocks to pay off that mortgage.

What I might do would be to put that question to my CPA instead of a bunch of yahoos on an interweb forum

[onewhippedpuppy]

I was laid off in 2022, total shock due to the small business that I worked for going broke and lying to me right up until the other shoe dropped. I was unemployed for about eight months. During that timeframe, I was pretty damn happy to not have a mortgage. So while I don’t question the math of mortgage payoff vs the market, there’s certainly a risk consideration here as well.

[masraum]

Originally Posted by red 928

Even investing very conservatively and diversified, I expect to make on average at lest 10% on equity investments.
Truth be told the average return over the past has been well over that number and LTCG taxes are still reasonable.

You are absolutely correct, but despite the market doing what you say, many/most folks in the market don't do nearly as well as the market. Too many people are emotional about it. Many times I've seen/heard "oh no, the market just went way down, so I sold off a bunch of stock (after it had gone down 10% or whatever). Then they wait, and the market starts going back up and to be "sure" they wait some more. Then they are sure, so they buy back in after the market has gone up quite a bit compared to what it was when they sold. I'm like anyone in the market, I hate to see it go down (assuming I don't have a ton of money burning a hole in my pocket at the time, LOL). But when it does go down, I don't sell. I bide my time and then 6 months or a year or whatever, I'm back up to higher than it was before it went down and I haven't lost anything. But then I'm conservative and invested in low cost index funds. I'm sure that there are folks that have made more in the market than me, but I think I'm doing OK compared to most, and probably with less stress.

[red 928]

Originally Posted by masraum

You are absolutely correct, but despite the market doing what you say, many/most folks in the market don't do nearly as well as the market. Too many people are emotional about it. Many times I've seen/heard "oh no, the market just went way down, so I sold off a bunch of stock (after it had gone down 10% or whatever). Then they wait, and the market starts going back up and to be "sure" they wait some more. Then they are sure, so they buy back in after the market has gone up quite a bit compared to what it was when they sold. I'm like anyone in the market, I hate to see it go down (assuming I don't have a ton of money burning a hole in my pocket at the time, LOL). But when it does go down, I don't sell. I bide my time and then 6 months or a year or whatever, I'm back up to higher than it was before it went down and I haven't lost anything. But then I'm conservative and invested in low cost index funds. I'm sure that there are folks that have made more in the market than me, but I think I'm doing OK compared to most, and probably with less stress.

Can't argue with any of that, and yes I've made my share of mistakes like you describe, especially when I first got into it.
I studied and learned so the mistakes are fewer than they used to be.

Some could argue that if I really felt that strongly abut the points in my post I would mortgage the heck out of my properties and sink all that money into equity investments.
But I haven't and won't.
A guy could get stinking rich doing that but he could also lose everything quickly.
Maybe if I were still in my twenties ....

[zakthor]

The stocks are volatile. We could see a big drop and slow recovery. On the other hand interest rates could fall and you could refinance.

You cant know the future.

How about start unloading shares and start paying it off a bit sooner? Its not a binary choice. Nothing wrong with easing into it.

[Por_sha911]

I prefer super low risk so if it were me, I'd go debt free. That said, how old are you? If the stock tanks, do you have 5-10 years to wait for it to recoop?

[LWJ]

I stopped reading early on here. I am a contrarian. It has served me well. I use my home, and my rental properties like an ATM. I have debt on both the forementioned items. I pay 2.375 on my home and have used some of that cash to earn 10-20+++% returns over the recent years. I am about to buy a vacation home in October in Italy. I am going to try like heck to get a mortgage on it. One of the driving factors is that I would pay 2-4%. Wow. If I just average the S&P500? I would make a killing on the delta.

With all that aside, you (and I) ABSOLUTELY need to manage for downside risk. Can you take a market hit? If not, don't do it. Don't gamble what you can't afford to lose.

I will leave you with the wisdom of my absolutely brilliant Grandfather, who founded a ludicrously successful bank. "If you can borrow money at X, and earn X+1 or more, do it all day long." That does however mean you need to allow for risk.

Good luck. Ultimately, do what you are comfortable with. Either way is a win.

[KFC911]

^^^ Just a different perspective than I have, and I like everything you and others have posted... of course y'all are correct wif the maf .... and I get that.

At 65 ... I want things simple ... and it has ZERO to do with $$$, or accumulating more.

Different strokes. No debt & nothing in equities here.... not anymore .

Everyones situation is different, and we are all different ... well... I know that I am .

You would NOT believe how $toopid one of my best friends has been for 4 decades, ignoring all common sense financial advice.

Talked with him yesterday... He's still doing it ALL wrong too.... and doing just fine too.... he's a banker like Josh is

[KFC911]

Originally Posted by onewhippedpuppy

I was laid off in 2022, total shock due to the small business that I worked for going broke and lying to me right up until the other shoe dropped. I was unemployed for about eight months. During that timeframe, I was pretty damn happy to not have a mortgage. So while I don’t question the math of mortgage payoff vs the market, there’s certainly a risk consideration here as well.

I saw so many job losses in my corporate IT career in banking, etc. from day one decades ago and then others. Like thousands in one day (50%)... btdt... saw what others went thru .... a LOT .

Wealthy and $weating bullet$ ....

I put a LOT of other bankers outta work along the way

It changes one's perspective too...

[cabmandone]

Okay, now I want to back up just a bit. The rental, vacation, single family, duplex, multi unit? How long is your rental agreement with tenants if not a vacay? If you're in the Cbus area and renting to students, I say keep the money in the market because you'll have a constant flow of income even in an economic downturn year.

Going back to your OP, you anticipate a 20% hit on capital gains. Nope... no way I take a 20% hit on gains AND lose a deduction on income generated from the rental. I'd be sticking with the 6.5 and betting on a rate cut or two in the next six months.

[NoRush993/951]

Make sure to hold free and clear titles by 2032.

[rwest]

If the best thing to do is keep investing in the stock market rather than paying down a mortgage, why would anyone lend people money at 3-5% to buy a house rather than taking that money and instead put it into the market as well?

I was “lucky” on my mortgage as I bought my house at a time when interest was around 8%, so paying it down rather than buying stocks was a better move.

I do like they feeling that if you got laid off and you were debt free, you could find pretty much any job and still keep living at your current comfort level.

[911 Rod]

Maybe a compromise?
Sell enough stocks to pay 1/2 the mortgage to ether reduce your monthly payments or pay off the mortgage sooner?

[HardDrive]

Originally Posted by NoRush993/951

Make sure to hold free and clear titles by 2032.

I’ll bite. Why?

[MikeSid]

For those suggesting that having a paid off home feels good or helps in an economic downturn or loss of employment, consider that HD already has the (rental) house paid for. He just hasn't tendered the money to the mortgage company. He's holding that payoff in another (pretty liquid)asset.

So we're not talking about deciding which debt to strive to pay off first from wages. We're just talking about where to allocate existing resources. That, IMHO, is the type of decision that should be completely driven by math - meaning competing interest rates, return, and tax implications. And I don't think it's a particularly close call. Keeping the rental asset, even though leveraged, likely 'maths-out' as the smarter move.