One of our mortgages is in striking distance of being paid off. Exciting times but what to do?
Debt reduction is a long road to get back to zero.
Mortgage debt reduction is a really long road to get back to really owning your house. When you can see the end, it's a great feeling.
Mortgage milestones
There's pretty much something to celebrate with every mortgage payment. Even if the principal balance isn't into the next $10,000, it's at least lower than it was the previous month.
At the rate we're paying down the mortgage on our investment property (our previous residence), by next fall it will be paid off.
We have fewer than twenty payments left.
Looking back it's a bit hard to believe that we're that close. (Trivia fun fact: I signed my loan papers for that house on 9/11. Yes, that 9/11.)
Do some reallocation?
In fact, we're close enough that we could pay off the whole thing this month if we wanted to, if we sold some stock. (This was an option even back in 2013 when we owed twice as much on the house as we do now.)
Is it the right thing to do? As with most financial decisions, it depends on the context. One person's personal finances is not the same as someone else's!
Here are some things that are worth considering:
- Will selling the stock throw your allocation out of whack? If the answer is yes, then it may pay to look at rebalancing your portfolio at the next opportunity.
- Will selling the stock cause a lot of taxes that will have to be paid with other funds? If the stock has appreciated, then there will be either short- or long-term capital gains tax to pay. If the stock is down, then it's a tax break to the extent it can be deducted.
- Will selling the stock be chopping a winner off at the knees? This is the main reason why I hesitated selling (and continue to hesitate). Our particular stock has been doing very well and pays regular and increasing dividends. It's a good asset and aside from the fact that we'd be paying off the mortgage, there's no good reason to sell it.
- Will selling the stock be throwing off retirement plans? Stocks are often long-term investments. Selling has consequences for portfolio growth. Not that it's bad to pay off a debt, of course! But there are trade-offs on return that should be considered.
Mortgages are always good when they're gone
Just be mindful how you gone them!
Hi John – congrats on the achievement. Victory is at hand! In a similar scenario, I would view the amount of total interest left to be paid using my expected rate of remaining mortgage payments, the current/expected rate of dividend return on my investments, my confidence in the growth/value of the company long term (intangible but crucial to the equation), costs to sell (including short and long term capital gains taxes), and then calculate how long/how much growth would be needed to offset the interest savings. If it was a longer period than I believed I should hold onto the investments, I would sell and payoff. Otherwise, I would stay the course.
Wow, thanks Jim! That’s a great way to break things down. That’s something I could even capture in a spreadsheet …
It feels good to pay something off! I still keep the Google calendar reminder for my car payment, even though it’s been paid off for a long time. Every month I’m thankful for a car that’s paid in full! You’ll be thankful for a mortgage paid in full, too! Congrats that it’s within reach.
Thanks for stopping by, Caren!
I like that reminder idea!