Author Topic: Input please! Pondering stock and house mortgage  (Read 3338 times)

NewPerspective

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Input please! Pondering stock and house mortgage
« on: January 23, 2015, 05:59:01 PM »
Hi,

Long time lurker (I read you guys daily, but very very rarely comment).  First some background info:

Me: 38
Husband: 44
No kids
Gross income yearly- 250k

Assets: approx: 900K - this includes all retirement and investments (does not include the house)  Note - about 200k of this is in one company - a large company that DH works for. I know, I know.  :-)

We owe about 255k on the house.   We are wondering if it makes sense to sell the company stock and put that money toward our mortgage.   

It would give us great peace of mind to know the house is paid off and this is definitely a huge, huge piece to us being FI.

I should also mention my husband will be awarded a large chunk of stock in April by the company.  The real value won't be known but by current prices maybe somewhere around 200K (however we do always hold for at least a year before selling, so we wouldn't sell this right away. Who knows what it will be in a year).

We are leaning towards selling and putting cash towards the house.  My husband is in the oil industry and while he feels fairly secure in his job, this latest downturn is really reminding us that things can change very quickly.  He is the high earner between the two of us.  I make 58k in (what I perceive as) a very secure job.

Of course I understand selling and diversifying that money into mutual funds would be the "smartest" thing to do when putting pen to paper and analyzing potential gains, but there is something to be said for peace of mind.

We know we will be paying capital gains taxes.

What are your thoughts?





NewPerspective

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Re: Input please! Pondering stock and house mortgage
« Reply #2 on: January 23, 2015, 06:06:33 PM »
Thanks for the links!

Financial.Velociraptor

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Re: Input please! Pondering stock and house mortgage
« Reply #3 on: January 23, 2015, 06:11:30 PM »
NP,

I become FIRE at age 40 a couple years ago on a lot less income than you have to work with.  My first priority before I even padded a year's worth of cash or bought a single share was my mortgage.  I was obsessed with the 'extra principal' line on my remittance ticket.

From a purely financial perspective, if you have a low interest rate it makes sense to keep the debt and in effect buy equity on "margin" so long as you buy safe dividend paying blue chips that appreciate at a rate faster than your mortgage rate.  I did that hedonistic calculus in my head and decided I'd still rather be debt free.

I never regretted the decision even though it maybe delayed my FIRE date by a year.  It is a huge lifting of an emotional burden to not have a mortgage payment.  You can also invest the entire amount of your former P&I without feeling a thing because it is "found money" that doesn't require you to give anything up.  I found not having that risk factor around my neck also emboldened me to try something I thought perceptually was risky, options.  I ultimately ended up with more income and less risk in my portfolio due to this and I credit extinguishing the mortgage.

Your Mileage May Vary.

NewPerspective

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Re: Input please! Pondering stock and house mortgage
« Reply #4 on: January 23, 2015, 06:21:52 PM »
NP,

I become FIRE at age 40 a couple years ago on a lot less income than you have to work with.  My first priority before I even padded a year's worth of cash or bought a single share was my mortgage.  I was obsessed with the 'extra principal' line on my remittance ticket.

From a purely financial perspective, if you have a low interest rate it makes sense to keep the debt and in effect buy equity on "margin" so long as you buy safe dividend paying blue chips that appreciate at a rate faster than your mortgage rate.  I did that hedonistic calculus in my head and decided I'd still rather be debt free.

I never regretted the decision even though it maybe delayed my FIRE date by a year.  It is a huge lifting of an emotional burden to not have a mortgage payment.  You can also invest the entire amount of your former P&I without feeling a thing because it is "found money" that doesn't require you to give anything up.  I found not having that risk factor around my neck also emboldened me to try something I thought perceptually was risky, options.  I ultimately ended up with more income and less risk in my portfolio due to this and I credit extinguishing the mortgage.

Your Mileage May Vary.

Thanks!  I feel we are definitely leaning towards paying off the house, but it feels crazy to sell so much stock!

Our interest rate is low - 3.5%. 

I know it comes down to a personal comfort level.  Just want to make sure we are considering all angles.



Spork

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Re: Input please! Pondering stock and house mortgage
« Reply #5 on: January 23, 2015, 06:37:52 PM »

I think there might be 2 questions here:
1) should we cash out $200k of stock in the company we work for (which is oil and might be in a downturn)
2) should we pay off our house

Don't make this one question.

1) If you're happy with the return... (you're up; it was bought with company match, so you're waaay up; you're afraid it's going to crash; etc.)  -- sell it.  You're over 20% invested in one asset and it's tied to your employment.  There is good reason to get out of it it.
2) I think there is a good argument both directions here.  I think the logical winning argument is generally to invest (at your mortgage rate).  I will tell you: I didn't.  I have a paid off house, but ... it was always part of my long term retirement plan.  And I'm really near the end and want that stability.  (I wouldn't go back and do it differently).

Also don't make this an all-or-nothing transaction.  Sit back and realize that you can pull some "comfortable" amount out of the company stock.  You can pay down "some chunk" of the house.  You can invest some amount.   It doesn't have to be 100%.

surfhb

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Re: Input please! Pondering stock and house mortgage
« Reply #6 on: January 23, 2015, 06:50:04 PM »
You're taking on an unnecessary and dangerous amount of risk with the stock IMO.    If the company tanks then you not only loose your investments but your husband's job as well.   

Sell the stock, pay off the home and you will will be FI.     No brainer

NewPerspective

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Re: Input please! Pondering stock and house mortgage
« Reply #7 on: January 23, 2015, 06:51:36 PM »

I think there might be 2 questions here:
1) should we cash out $200k of stock in the company we work for (which is oil and might be in a downturn)
2) should we pay off our house

Don't make this one question.

1) If you're happy with the return... (you're up; it was bought with company match, so you're waaay up; you're afraid it's going to crash; etc.)  -- sell it.  You're over 20% invested in one asset and it's tied to your employment.  There is good reason to get out of it it.
2) I think there is a good argument both directions here.  I think the logical winning argument is generally to invest (at your mortgage rate).  I will tell you: I didn't.  I have a paid off house, but ... it was always part of my long term retirement plan.  And I'm really near the end and want that stability.  (I wouldn't go back and do it differently).

Also don't make this an all-or-nothing transaction.  Sit back and realize that you can pull some "comfortable" amount out of the company stock.  You can pay down "some chunk" of the house.  You can invest some amount.   It doesn't have to be 100%.

Good points all around.  Thank you!

Having a paid off house is part of our long term plan too.  We bought a house we love and have put money (too much really) into renovating it just the way we want.  We did this knowing we will be here long term. 

I agree, we need to sell company stock one way or another.

thedayisbrave

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Re: Input please! Pondering stock and house mortgage
« Reply #8 on: January 23, 2015, 07:40:35 PM »
Yes, this is a good plan.  Especially considering another round of stock is coming your/your husband's way... that would potentially put you up to $400K?

Sell and enjoy being mortgage free.  It's a pretty cool (& badass) feeling.