I recently bought a house at 6%. I’ve been aggressively selling stocks to reduce the mortgage to 750k (at that point interest is roughly 4% with the mortgage interest deduction). Thoughts? Is this a wise move? I’ve paid off over 300k of the principal in the last few months, have 230k to go until we’re at 750k mortgage remaining). Should I slow down and stay in the market? I’ve been mainly selling vested RSUs from the last few years so it’s also helping me reduce single stock risks but I could start buying SPY instead. #mortgage #housing #investing Edit — I have enough vested RSUs for the 230k now and/or a large vest coming in Feb to cover that amount. At 750k the LTV is roughly 35%. My marginal tax rate is 44% so any interest saved being tax free is a huge boon. We’re comparing liquid SPY vs illiquid 6% guaranteed tax free returns. HH TC 1.5M
Not a bad option, not sure if you will have an option to redraw money and reinvest in stock market and make your loan deductible.
No ones it’s paid the money is locked and cannot be removed without refinancing or a HELCO.
As a rule of thumb you’d get 9% annual returns if you sell rsus and invest in index funds. Keep in mind the dividends will be taxable. Saving 6% interest is tax free. I would reduce my loan until I am comfortable with the repayments and then invest the rest.
Put money in treasuries, earn 5.4%. Go riskier for greater return. You can easily make > 4% right now
I’ll stop once I reach 750k left on the mortgage. The question is what about the 250k until I get there (there’s currently 1M left).
That assumes equal savings and principal
Sell the house and rent
I thought apple had a good hiring bar.
Apple isn’t wrong.
Real estate typically increases yoy at 2% if your market investments exceed that, your plan would not be financially sound. Expect rates to significantly drop over the next 12 months. Biden has too many train wrecks to manage, that is one way they will boost the market by lowering rates.
We’re not comparing with real estate returns, we’re comparing with mortgage interest which is real. The rate is locked until I refinance and I could always cash out refinance if the rate went below 4% which I doubt will happen for a long time. So we’re comparing SPY with 6% tax free guaranteed returns.
Why do you expect rates to drop significantly?
Few years later when interest rates drop, you will regret selling RSUs
Yoe? Tc?
Can you explain what you mean by 4% with mortgage interest deduction. Isn’t your loan at 6%? I’m in a similar boat and thinking if I should pay down my principal
If you itemize your taxes, you can deduct the interest you pay up to a $750k mortgage from your federal income tax. The 4% is probably net interest after taking this deduction into account.
I see, let’s say I have 1m in mortgage, can I still deduct interest upto 750k ??
Hey OP, it’s a fine decision.
This is more or less what we did, using the same calculus you did, even with a lower interest rate.
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I personally would slow down and stay in the market, but what’s your situation? Age? Net worth? TC? Any other liabilities? These things can influence whether this is a good decision or not
Let’s just say I can easily afford it and have no other liabilities. Early 30s. The money will either be in SPY/VOO or in the house.
Gotcha. Still not enough info, but I also hope you aren’t getting confused with lowering your mortgage balance vs a mortgage recasting. Have you discussed with the bank if you can recast? Even if you lower your mortgage balance, that doesn’t change the amount you pay monthly, it just lessens the time you need to pay the mortgage. The interest would still be based on the original amount which would still be over $750k. You would need the bank to recast the mortgage.