Author Topic: Sell stock to pay off mortgage balance? is this a dumb move?  (Read 1958 times)

ca-rn

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Sell stock to pay off mortgage balance? is this a dumb move?
« on: October 02, 2024, 04:34:08 PM »
I have never sold any stock (except TLH) but considering selling some funds to pay off mortgage balance (38k) from taxable account.

Plan to FIRE in 2025, will have large vacation payout making yearly income the same or larger.

Work part time- gross about 120k, rental income about 40k, single filer, no kids, live in CA.

I have about 12k in Federal MMF for mortgage payoff, adding about 1k per month.

I have a taxable account for the property that has enough extra to pay off the remaining balance (26k).

Using a capital gains tax calculator estimating gross income at 160k, 10k gain, total taxable 170k, estimated capital gains federal tax is $1500, state tax is $1023.  I'd pay $2523 in taxes for 10k appreciation. 

Is this a dumb move?  I feel like its kind of dumb but I've never sold funds before and once I retire, I will need to get used to selling funds to live off of...
I get taxed for interest in HYSA accounts and for dividends/distributions so I don't know if its better or worse to sell and pay taxes or use cash at hand?

I do have enough cash to pay off the balance but that would use up most of it (have plenty of funds in taxable/401/still working) and would be able to build it back up fairly quickly.

I've been a good saver but learning how to sell/live off of investments is new to me. 

Thanks in advance!




seattlecyclone

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Re: Sell stock to pay off mortgage balance? is this a dumb move?
« Reply #1 on: October 02, 2024, 06:00:21 PM »
What's the interest rate on the mortgage?

ca-rn

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Re: Sell stock to pay off mortgage balance? is this a dumb move?
« Reply #2 on: October 02, 2024, 08:28:23 PM »
What's the interest rate on the mortgage?

3%.  It's set to end in 2028 but i've made extra payments to the principal on/off over the years and then recently stopped to divert extra funds into a HYSA/MMF for early payoff instead, saved close to 12k.

It makes no (financial) sense but I want to experience a no mortgage life while still working for a bit before RE. 

And I may be getting a vacancy this winter/early spring (hard to fill season) and again, it makes no sense especially since I have adequate funds, but I got super anxious with the last vacancy (no rent x 2 months and costs going out to turn a unit) w/mortgage payment and regular ongoing costs (property tax/insurance/water/maint). 

I feel like once I'm RE w/the mortgage paid off, future vacancies won't stress me out.

achvfi

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Re: Sell stock to pay off mortgage balance? is this a dumb move?
« Reply #3 on: October 02, 2024, 08:49:22 PM »
With mortgage balance of just 38k, it is not a big deal either way.

If it was me I would keep the sweet 3% mortgage as long as I can. Importantly you are also losing flexibility of available cash vs locking it in house during vacancy or other financial need. Also you are paying capital gain tax, which makes it even less appealing.


SeattleCPA

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Re: Sell stock to pay off mortgage balance? is this a dumb move?
« Reply #4 on: October 03, 2024, 05:26:39 AM »
I don't think it's a bad idea. Just to offer another point of view. Maybe I'd put it into the category of "okay." Even "sorta good."

Your 3% may depending on your tax return be essentially an "after-tax" rate of return. If that's case, saving 3% on the mortgage may be like earning 4% on some other account.

You probably ought to have some bonds in your portfolio. A mortgage you pay off is like a bond.

There's a simplification angle to this that's maybe worth something. I.e., not having another monthly bill to fiddle with.