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Mortgage Payoff – When & Why?

Mortgage Payoff – When & Why?. David E. Hultstrom, MBA, CFP. Outline. Clarifying the Question The Math Part The Human Part Observations & Examples. Clarifying the Question. A mortgage is simply an investment opportunity Doesn’t affect real estate exposure

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Mortgage Payoff – When & Why?

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  1. Mortgage Payoff –When & Why? David E. Hultstrom, MBA, CFP

  2. Outline • Clarifying the Question • The Math Part • The Human Part • Observations & Examples

  3. Clarifying the Question • A mortgage is simply an investment opportunity • Doesn’t affect real estate exposure • It’s an asset allocation question • The mortgage is a short bond position

  4. The Math Part • Example: • Client has $1,000,000 portfolio invested 60/40 (stocks/bonds) • Client also has a $200,000 mortgage • The client is actually $600,000 in equities and $400,000 long in bonds and $200,000 short in bonds. • The actual NET allocation is $600,000 stocks and $200,000 bonds or 75/25!

  5. The Math Part (cont.) • Don’t confuse risky with risk-free returns • The impact of taxes • Federal • State • Compared to treasuries • Risk free return • Similar duration

  6. The Human Part • Debt free! • Yet higher perceived volatility • Could go either way • More likely to stay the course • Less likely to stay the course • Propensity to save the payment

  7. Observations and Examples • A conflict of interest • Taxable funds only • Assumes they have a bond allocation • Example: • A condo at 9.75% • CPA’s advice • My advice • Netted about 7% a year

  8. Contact Information David Hultstrom, MBA, CFP Financial Architects, LLC 804-795-5500 DEH@FinancialArchitectsLLC.com www.FinancialArchitectsLLC.com

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