Hypothetical Question: Would You Payoff Mortgage?

[Eagle]

I'm contemplating a hypothetical question regarding a mortgage payoff.

Let's say I have 75k in a mutual fund. And I also have a mortgage with say 100k at 4.625% interest.

Would you cash in the mutual fund to pay off the mortgage? Why or why not?

[Petunia 100]

Maybe. It would depend.

How old am I, hypothetically?

What other assets do I have, hypothetically?

[creditcardfree]

Definitely not if those mutual funds are a retirement account.
Probably not because the funds are likely to grow at a rate better than 4%.
Maybe for peace of mind.

[disneysteve]

We've been in that situation for years. We have 2 taxable mutual fund accounts that each have more than enough to pay off our mortgage - but we haven't. Why? Well #1, they are taxable accounts so if we liquidate them, we'll have a big tax bill. And #2, over the past year, those two funds had returns of 16.37% and 32.11%. We'd be insane to cash them in to pay off our 3.99% mortgage (which is a net rate of about 3% after the tax deduction). I'd love to be mortgage-free but not at that price.

[Eagle]

Maybe. It would depend.

How old am I, hypothetically?

What other assets do I have, hypothetically?

Let's say you're 32. Let's say your assets look like this:

Cash: 40k
Mutual Fund: 75k
401k: 70k
Roth: 3k
House Value: 135k
Vehicle 1: 11k
Vehicle 2: 7.5k
Bonds: 2k
Total Assets 343.5k

Let's say your liabilities look like this:

Ashley Furniture 4k
Mortgage 102k
Total liabilities: 108k

Let's say your household income is 64k.

[Eagle]

Definitely not if those mutual funds are a retirement account.
Probably not because the funds are likely to grow at a rate better than 4%.
Maybe for peace of mind.

We've been in that situation for years. We have 2 taxable mutual fund accounts that each have more than enough to pay off our mortgage - but we haven't. Why? Well #1, they are taxable accounts so if we liquidate them, we'll have a big tax bill. And #2, over the past year, those two funds had returns of 16.37% and 32.11%. We'd be insane to cash them in to pay off our 3.99% mortgage (which is a net rate of about 3% after the tax deduction). I'd love to be mortgage-free but not at that price.

I agree with both of you. But is peace of mind worth it?

I guess I'm just a little frustrated. I'm part of several other personal finance communities. Dave Ramsey would say to cash in the investment to pay down the debt. But it makes no sense to cash out the mutual fund investments that could potentially grow to double or triple the amount currently IMO. I also agree that 4% could easily be beaten by the market.

What funds do you have that are growing 16.37% and 32.11% respectively Steve?

[feh]

What are the mutual funds? Can a reasonable estimate be given for what they will return (if they are in equities, the answer to that question is "no")?

Have the mutual funds been designated for retirement? Are they in a taxable account? If yes, what capital gains would be realized?

Are you able to claim the mortgage interest as an itemized deduction?

[disneysteve]

I agree with both of you. But is peace of mind worth it?

Only you can answer that question. For me personally, I get more peace of mind from seeing my investments grow in value than I would from having no mortgage. At least that's my answer today. In a few years, especially after our daughter is through college, my answer might change.

What funds do you have that are growing 16.37% and 32.11% respectively Steve?

With the disclaimer that I am in no way recommending either of these funds to anyone, the two funds I'm referring to are JANSX and HRTVX.

Of course, in recent months, you haven't needed to be an investing genius to get those returns. I also own VFIAX (19.68%), VIGAX (19.31%) and VGHCX (31.78%). So JANSX was actually the laggard of the portfolio at "only" 16.37%.

[rennigade]

With the disclaimer that I am in no way recommending either of these funds to anyone, the two funds I'm referring to are JANSX and HRTVX.

Why do people always give a disclaimer before they list what funds they own? Is there some sort of legality issue that if someone invests because of what you said you can be held liable? I dont get it? If people are that dumb as to not do any research and invest just because someone else holds a certain fund that has done well...well they deserve whatever happens imo.

Im not singling you out disneysteve...I see this pretty much everywhere and was just curious.

[disneysteve]

Why do people always give a disclaimer before they list what funds they own?

Well, since I'm not an investment professional, there isn't any legal issue if someone chooses to invest based on advice I give online, but I think we tend to do it just to remind people that they need to do their own research. People invest based on tips from friends, family, coworkers, talking heads on TV, etc. I don't want someone coming on here in a few months complaining about how much money they lost based on my investment "advice".

[bigdaddybus]

Only you can answer that question. For me personally, I get more peace of mind from seeing my investments grow in value than I would from having no mortgage. At least that's my answer today. In a few years, especially after our daughter is through college, my answer might change.


With the disclaimer that I am in no way recommending either of these funds to anyone, the two funds I'm referring to are JANSX and HRTVX.

Of course, in recent months, you haven't needed to be an investing genius to get those returns. I also own VFIAX (19.68%), VIGAX (19.31%) and VGHCX (31.78%). So JANSX was actually the laggard of the portfolio at "only" 16.37%.

what time range are you quoting? 3 months?

hear are a few 2014 YTD returns: HRTVX -2.85%, JANSX 6.28%, the only big performer is VGHCX at 18.93% YTD.

[disneysteve]

what time range are you quoting? 3 months?

No, I was listing the 1-year returns.

[bigdaddybus]

Humm, your numbers are not close to what yahoo finance shows

[disneysteve]

Humm, your numbers are not close to what yahoo finance shows

My apologies. The numbers I listed weren't all for the same time period.

VGHCX has a 1-year return of 31.78% as of 9/30/14.
HRTVX was up 32.11% for 2013 but is 7.73% for one year as of 9/30/14.
JANSX is 16.37% for one year as of 9/30//14.

These are not YTD numbers. They are for one year from 9/30/13 to 9/30/14.

[bigdaddybus]

Thanks for clarifying. I just like to research what I read others have chosen to invest in to see if I want to consider them for myself. I was just a bit lost matching up numbers as I traditionally only focus on YTD, 3 yr, 5yr, and 10 yr returns.