Question: Mortgage & Mutual Fund

**snafu** · 04-18-2015, 06:36 AM

Sorry, I don't see this as an easy answer...

What was the initial goal for the non retirement MF? How much of 80K was contribution, how much was re-investment and capital gain? What are the income tax ramifications for cashing out? What is the current mortgage:interest ratio? What alternatives do you have to accelerate mortgage principal pay-out? What FICO score? Do you qualify for a low cost re-fi since there are better mortgage rates available? It comes down to fees which are negotiable.

**disneysteve** · 04-18-2015, 08:19 AM

I agree that it is a complex question.

I can tell you what we've done, as we are in a similar situation.

We owe about 50K on our mortgage at 2.99%.
We have 2 taxable mutual fund accounts. Both accounts hold enough money to pay off the mortgage.

We have chosen not to sell the funds to retire the mortgage.

Why not?

One fund has a 5 yr annualized return of 13.16%.
One fund has a 5 yr annualized return of 10.87%.

So we could have cashed out and gotten rid of the debt but it would have cost us thousands of dollars in missed returns had we done so.

I'd love to not have a mortgage, but I don't want to be short-sighted and use money that could earn us a whole lot more than carrying the loan is costing us. I made that mistake years ago when I was paying back my student loans. I threw a lot of extra money at those payments during a time when the market was on a huge run. Had I invested instead, I would have come out way ahead.

**CashUp Sammy** · 04-19-2015, 03:45 AM

Those are good returns Steve, and wise accounting there.

Does the OP have an accountant? It's best assessed in combination with your entire financial situation. Is there any income still happening? other assets, age etc.

**JulieAlbright** · 04-19-2015, 05:22 AM

We're in a situation with pretty similar numbers. I think our mortgage balance is around $102k.

One reason we've never chosen to accelerate our mortgage payoff is that our house is in an area where it isn't uncommon to take 2 to 3 years to sell. So pretty much any additional money that gets put into the house is likely tied up in the house for a very long time. For right now, we've always wanted to keep the money more available in case we ever want to, or have to, move.

We've also discussed many times buying a 2nd home somewhere warmer. Our income is more than enough to carry two mortgages but we'd need a healthy down payment.

All those plans are just kind of fuzzy maybe someday dreams, but for now it just feels more logical to put the money into investments than mortgage payoff.

**greenskeeper** · 04-19-2015, 02:50 PM

paying of the mortgage is a guaranteed return on investment

market based investments are always a gamble

**disneysteve** · 04-19-2015, 05:03 PM

Originally posted by greenskeeper View Post

paying of the mortgage is a guaranteed return on investment

market based investments are always a gamble

True, but I'm more than willing to bet that my investments will average more than 2.99%.

**Eagle** · 04-20-2015, 05:15 AM

Originally posted by snafu View Post

Sorry, I don't see this as an easy answer...

What was the initial goal for the non retirement MF? How much of 80K was contribution, how much was re-investment and capital gain? What are the income tax ramifications for cashing out? What is the current mortgage:interest ratio? What alternatives do you have to accelerate mortgage principal pay-out? What FICO score? Do you qualify for a low cost re-fi since there are better mortgage rates available? It comes down to fees which are negotiable.

It is an investment account originally for my DW's college expenses. The account was opened back in the late 1990's. 5 years ago the MF was worth about $40k.

We'd have to see how much was re-investment and capital gains.

We'd need to check on the tax ramifications.

Other alternatives to accelerate mortgage principle pay out are getting a raise and paying more towards principle. It could happen potentially later this year. Also, we already pay bi-weekly or mortgage.

FICO scores are both near 800.

Not sure we'd want to re-fi as we bought the house in the winter of 2013. Would have to crunch some numbers on fees.

**Eagle** · 04-20-2015, 05:24 AM

Originally posted by CashUp Sammy View Post

Those are good returns Steve, and wise accounting there.

Does the OP have an accountant? It's best assessed in combination with your entire financial situation. Is there any income still happening? other assets, age etc.

Yes I have a CPA. I approached him about it a while back when the fund was worth half what is now. I'll give him a call.

Income is about 65k a year. We are in our early 30's and have a net worth of about 250k.

**Eagle** · 04-20-2015, 05:27 AM

Originally posted by disneysteve View Post

I agree that it is a complex question.

I can tell you what we've done, as we are in a similar situation.

We owe about 50K on our mortgage at 2.99%.
We have 2 taxable mutual fund accounts. Both accounts hold enough money to pay off the mortgage.

We have chosen not to sell the funds to retire the mortgage.

Why not?

One fund has a 5 yr annualized return of 13.16%.
One fund has a 5 yr annualized return of 10.87%.

So we could have cashed out and gotten rid of the debt but it would have cost us thousands of dollars in missed returns had we done so.

I'd love to not have a mortgage, but I don't want to be short-sighted and use money that could earn us a whole lot more than carrying the loan is costing us. I made that mistake years ago when I was paying back my student loans. I threw a lot of extra money at those payments during a time when the market was on a huge run. Had I invested instead, I would have come out way ahead.

The investment is through Fidelity: FPURX

**disneysteve** · 04-20-2015, 06:29 AM

Originally posted by Eagle View Post

The investment is through Fidelity: FPURX

1 yr return: 11.12%
3 yr return: 12.15%
5 yr return: 11.35%

I certainly wouldn't give that up to pay off a low interest loan with an effective rate of about 3.45% after the tax deduction. JMHO.

**bjl584** · 04-20-2015, 07:28 AM

If the mortgage is bothering you do you have the option to just pay extra and accelerate the pay down?

I wouldn't cash out a fund with a 11% return to pay down a low interest mortgage either, but you could always throw some extra money at it from outside of the fund just to pay it off quicker.

**disneysteve** · 04-20-2015, 07:42 AM

Originally posted by bjl584 View Post

I wouldn't cash out a fund with a 11% return to pay down a low interest mortgage either, but you could always throw some extra money at it from outside of the fund just to pay it off quicker.

That's what we do. We have been making extra payments for years. At one point, we were paying quite a bit extra. Now, for various reasons, we are just rounding up to the next $100 mark, but it still amounts to an extra $1,165/year being paid toward principal.

Question: Mortgage & Mutual Fund