Should I auto sell RSUs to pay my mortgage?

Google / Eng Feeunvr
Apr 14 51 Comments

Just finished my taxes and realized that I’m paying a significant amount of post-tax money to the interest. Want to ask the blind community to see if there’s anything wrong with my logic.

I owe $1.1M in mortgage principle. That comes out to about $45K in interest per year. Given that I bought my home last year, the cap for mortgage interest is $750K. That means I can only deduct 750/1100 * $45K = $31K; the remaining $14K is post tax money.

The above means that (at 50% tax rate) I’m paying the gov another $14K in taxes per year (so $14K to the gov and $14K to bank in interest). This is more than what I can make in mutual funds. I’m thinking of just paying down the principle as fast as I can, by also putting all my vesting stock into my mortgage payments.

Do you agree? If not, let me know why in the comments. Thanks!

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TOP 51 Comments
  • Oath / Mgmt Atinlay2
    Sell the house. This isn’t sustainable. You bought a house you can’t afford.
    Apr 14 14
    • Cruise Automation dlehrnap9
      You’re the one being emotional and I’d wager it’s jealousy: again there is no evidence that he can’t afford it. In fact there is evidence to the contrary: he’s making his mortgage payments and has extra to spare to invest in the market.
      Apr 14
    • Microsoft lMQO62
      Hey I agree saying he “can’t afford it” was ineffective way to describe the point. I’m not the one who said that. “Can’t afford it” means different things to different people. I’ve defined my terms now, and already explained whether or not he can afford it is irrelevant.

      The judgment is on the waste of money, which could be put into any investment and do better. OP could have put his money in a bank and went afk, and came out wealthier than his current situation.
      Apr 14
    • Cruise Automation dlehrnap9
      “Buying a house one can’t afford” is a direct quote from you. All of your posts hinges on this point and you’re relying in a comment thread agreeing with the guy who said that.

      It seems your actual point is that you think buying a property is a poor financial choice, and that may or may not be the case and isn’t always clear especially not to you with this information. And even if it is: buying a house as a life choice is a perfectly reasonable individual to one and doesn’t mean he should discount how to make the best financial choices after doing it.

      All this is to say your posts are unhelpful and off topic.
      Apr 14
    • Oath / Mgmt Atinlay2
      No, I’m saying asking questions like this is a poor financial choice. It’s cute how you all defend each other.
      Apr 14
    • Microsoft lMQO62
      Everything is a poor financial choice
      Apr 14
  • Microsoft not-a-dev
    I think it makes sense. The biggest benefit of a mortgage is that interests are deductibles. But if a part isn’t, then might as well pay it off ASAP.
    Apr 14 9
    • Facebook public2
      Agree to disagree I guess. Not sure who else will loan you millions for under 4% but you are super lucky to have that option!
      Apr 14
    • Uber / R&D jidao
      4% is a lot, go to Europe and you would get loan under 2% to buy a house. Interest rate are stupidly high here
      Apr 14
    • Microsoft not-a-dev
      Well 2% is very low, but... once again it’s all about the risk and the demand.

      Rates are lower in Europe, but to get a mortgage you need a full-time job contract, which in many countries there means your employment is not at-will. So, risk for the lender is lower.

      Secondly, people in most European countries can NOT default on their mortgages: unlike corporations, the law doesn’t allow individuals to declare bankruptcy, so a debt is forever.

      Many young people can’t buy homes because they don’t have a full-time contract. This also means demand is lower, and so prices (rates) are lower too.
      Apr 15
    • Facebook public2
      My first loan was almost 10% so 4% is unreal but yep all relative I supoose.
      Apr 15
    • Uber / R&D jidao
      True
      Apr 15
  • it depends how much you think RSUs are worth. If you think RSUs will only go up 4% then sell. But I doubt that this is the case.

    You’re only paying 4% in interest over 30 years. Unless you sell your house soon, then you’re paying interest at the beginning of the loan. So if you intend to sell within next 5 years then, then cash your RSUs
    Apr 14 6
    • 8% very high and not likely to get that return in a bear market over the next few years.
      Apr 14
    • Microsoft / Eng Harmar
      You only have to beat 4% (or whatever your mortgage rate is), not 8%.

      Risk adjusted, of course, but the bar is whether your investments earn a higher percentage than your mortgage costs.
      Apr 14
    • Google / Eng Feeunvr
      OP
      Incorrect, since we’re talking post tax. 4% return from stock market would mean 2% in my pocket and still -4% mortgage interest that I can’t deduct.
      Apr 14
    • Microsoft / Eng Harmar
      You do have to factor in capital gains tax rate in your returns, yes, but if you're doing things right, you pay long term rates (not income rates), and they're a one-time hit. You can't compare it to yearly rates.
      Apr 14
    • Microsoft / Eng Harmar
      If your long term capital gains rate is 20% and your horizon is one year, that means you need to beat 5%. If your horizon is 5 years, you have to beat 4.14%.
      Apr 14
  • Snapchat gqkO66
    No. Just rent the house and live in a van in the google parking lot. Shower and eat at work.
    Apr 14 0
  • Apple parking
    Peace of mind of a paid off primary mortgage is way higher than any returns you may or may not get. If this was a second investment property then I would not worry but for a primary residence it makes no sense with current laws to hold onto mortgage. It is a guaranteed 4% return paying it off which no govt bonds can offer
    Apr 14 2
    • Amazon 63784747
      Is it better to pay off significant part of mortgage or creating a 1 year safety fund or something in between?
      Apr 14
    • Apple parking
      Always have a 6 month emergency fund. Or 1 year if in high risk job
      Apr 14
  • New xzXn22
    Things to consider:
    0. Risk management (preserving your net worth against bad stuff happening) becomes more important as you have more assets.
    1. Paying off mortgage gives you a guaranteed return, while holding stock has risk.
    2. Holding one companies stock as a high-concentration of your portfolio is risky. People tend to be really bad at predicting the stock market, and people who are good at it still assume most of the change in stock price will be unpredictable (brownian motion)
    3. Unvested RSUs that you expect to vest should be counted as part of your portfolio, because a change in the stock price today will change your future income.
    4. Holding stock for your company has extra risk, if the company does poorly there is a chance you lose your job at the same time the stock price drops

    Based on the above, it might make sense to: Always auto sell RSUs. Between your unvested RSUs and your job, you have more exposure to your employer then you’d want from a diversified portfolio perspective.

    If we assume the above convinces you to always auto sell RSUs, the next question is what do you buy with the income you get from selling RSUs. You could pay down your mortgage, and get the guaranteed return from not paying interest on the principal you pay down. Or you could buy other assets. It’s hard to answer this question without having a lot more information about your assets and income. Likely the lowest risk option is to pay down your mortgage, and probably if you compare it to the alternatives with a risk-averse utility function it’ll probably look reasonable when compared to other options.
    Apr 14 1
    • Microsoft / Eng
      MgIr74

      Microsoft Eng

      PRE
      Amazon
      MgIr74more
      Always always always sell your RSUs!
      Apr 14
  • Microsoft / Eng Harmar
    Paying off the mortgage will not change the tax rate on the $14K income that you can't deduct.

    What you should be comparing is the rate of return on your money. To make the math easy, assume 4% mortgage and 25% tax rate.

    Paying off the deductible portion of your mortgage is basically a 3% return. Paying off the non-deductible portion is basically a 4% return.

    If you can make more than 4% on that money (adjusting for the fact that the mortgage return is no risk), and you're disciplined enough to invest and not spend that money, you should.

    If you don't think you can make 4%, or you think you'll spend it if you have it, then pay down the mortgage.
    Apr 14 3
    • Apple parking
      Deductible portion is not fully deductible since OP would get $24k standard deduction anyway. If we assumed $10k salt then the first $14k of interest gives no benefit even for $750k mortgage
      Apr 14
    • Microsoft / Eng Harmar
      Fair. But point stands - non-deductibility bumps it from 3% to 4% effective return. At no point do you get <tax rate>% returns by paying early.
      Apr 14
    • Google Mr. Glass
      This guy gets it. Everyone else is an idiot out here. I didn’t even feel like responding reading some of the ignorant top posts here.
      Apr 17
  • Facebook public2
    Your interest rate is only in the 4% range no? You should easily be able to earn more than that regardless of the tax benefit (750 federal, 1m ca). Regardless don't put all your eggs into a single basket (your house)
    Apr 14 2
    • Facebook
      maco

      Facebook

      BIO
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      macomore
      I put all my eggs in the FB basket and made a 1% return over 3 years
      Apr 14
    • Facebook public2
      Just proving my point?
      Apr 14
  • New wgAJ62
    I would pay off mortgage for the peace of mind. Then again, I am a single earner with a family to support so paying off mortgage has higher value to me over other things. If God forbid something happens, at least my family has a paid off roof and won’t be on the street.
    Apr 14 1
    • Microsoft / Eng Harmar
      You're probably better off carrying a comparable amount of life and disability insurance.
      Apr 14
  • Two Sigma not nice
    I’ve found the type of financial advice people give on blind not to be super relevant to people in the top tax bracket with net worths well over $1M. Some of the comments on this thread are ridiculous. The poll result seems reasonable though.
    Apr 14 0
  • New hqWe60
    wheres is tax rate 50%?
    Apr 17 1
    • Google / Eng Feeunvr
      OP
      39% fed, 12% state. There’s also payroll tax (Medicare, Medicaid, SS, SDI) that I don’t consider here.
      Apr 17
  • Microsoft / Eng
    MgIr74

    Microsoft Eng

    PRE
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    MgIr74more
    Sell all your RSUs and buy index funds
    Apr 14 0