Sell shares to overpay mortgage?

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The key point is the hurdle rate for a personally-held share investment with debt at 3%-ish bubbling away in the background.

Parking the other points around risk etc or better mortgage rates for lower LTVs, what’s the point?

I’m taking the guaranteed return every time, thanks. And if markets go up, I’m happy anyway because I prioritise AVCs over mortgage overpayments.
 
Gordon Gekko said:
Well it won’t, because of tax.

And debt is also recurring; you’ve seen those mortgage calculations where it says “borrow X, total repayments Y”, yeah?

Parking single stock punts like Tesla which could go either way, let’s just look at 2022 in isolation:

Let’s say I’ve a surplus €50k, my AVCs are maxed out, I have an emergency fund, and I have a mortgage which isn’t a tracker. I just don’t see why I would invest in equities rather than putting the €50k against the mortgage. I already have meaningful equity exposure via the pension. If things go well on the equity front, I might make 3% after taxes and costs. Or I can take a guaranteed return of 2.5% via the mortgage.

Then when the mortgage is cleared, I can divert all surplus cash plus the mortgage repayments into an equity portfolio.
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Sorry but that isn't correct. €17.5k invested for 20 years at 7% would be worth €67,700. After tax (based on 33% CGT) it would be a little over €51k. Putting that €17.5k off the mortgage now would save €29,240 over the same period. Crazy paying it off Mortgage. Has the OP indicated his age or how long is left on Mortgage btw??
 
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Cardano93 said:
Sorry but that isn't correct. €17.5k invested for 20 years at 7% would be worth €67,700. After tax (based on 33% CGT) it would be a little over €45k. Putting that €17.5k off the mortgage now would save €29,240 over the same period. Crazy paying it off Mortgage. Has the OP indicated his age or how long is left on Mortgage btw??
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Quite the discussion! Seems it's touched on a fundamental topic of whether it makes sense to invest when you're carrying mortgage debt.

To fill in the blanks, myself & my wife are 39, we have 26 yrs left on our mortgage, combined income of 200k, 2 young kids, approx 25-30k annually in after tax income to save/invest/overpay our mortgage (after maxing AVCs).
 
Cardano93 said:
Sorry but that isn't correct. €17.5k invested for 20 years at 7% would be worth €67,700. After tax (based on 33% CGT) it would be a little over €51k. Putting that €17.5k off the mortgage now would save €29,240 over the same period. Crazy paying it off Mortgage.
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It's November 2001, exactly 20 years ago. You have a €100k mortgage with Bank of Ireland at 5% or so. Its share price is €138.

€50k falls into your lap. Do you: a) pay down the mortgage; b) by €50k of Bank of Ireland shares?
 
Gordon Gekko said:
The key point is the hurdle rate for a personally-held share investment with debt at 3%-ish bubbling away in the background.

Parking the other points around risk etc or better mortgage rates for lower LTVs, what’s the point?

I’m taking the guaranteed return every time, thanks. And if markets go up, I’m happy anyway because I prioritise AVCs over mortgage overpayments.
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The hurdle rate for inflation is more important. achieving 2.6% on your capital (which is what you are saying by paying off debt at that rate) doesn't make sense when inflation is 5%.
 
The S&P500 returned an annualised 4.00% over the first 20 years of this century, with all dividends reinvested.

After all investment costs and taxes, an Irish investor would have done well to make an annualised return of much more than 2.00%.

Over the same 20-year period, Irish mortgage rates averaged 4.36%.

So, over that 20-year period the risk of investing in equities didn’t pay off - you would have been far better off paying down your mortgage.

IMO it rarely makes sense to invest in equities outside a pension while carrying a mortgage.

Simplicity is the ultimate sophistication - just pay down your mortgage.
 
NoRegretsCoyote said:
It's November 2001, exactly 20 years ago. You have a €100k mortgage with Bank of Ireland at 5% or so. Its share price is €138.

€50k falls into your lap. Do you: a) pay down the mortgage; b) by €50k of Bank of Ireland shares?
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Good point however I wouldn't have recommend putting that 50k into any single stock (and the same applies now). Do the same exercise using S&P 500 index or a mixture of tech and value stocks that were around at that time and you will see the opportunity cost. I know what I would do.
 
Cardano93 said:
Do the same exercise using S&P 500 index or a mixture of tech and value stocks that were around at that time and you will see the opportunity cost. I know what I would do.
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I’ve just done that exercise (see my previous post) and paying down the mortgage came out well ahead.
 
Sarenco said:
I’ve just done that exercise (see my previous post) and paying down the mortgage came out well ahead.
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Rates for S&P aren’t correct though.
www.officialdata.org

S&P 500 Returns since 2000

www.officialdata.org www.officialdata.org
Also worth noting that OP’s rate is 2.6% and with current inflation along with the resulting increase in asset prices (particularly equities and commodities) this needs careful consideration. Each to their own but there is no way I’d ever dream of paying that down now, particularly if a long term investor. PS I’m obviously not a fan of Dave Ramsay and his way of thinking ;)
 
Sarenco said:
The S&P500 returned an annualised 4.00% over the first 20 years of this century, with all dividends reinvested.

After all investment costs and taxes, an Irish investor would have done well to make an annualised return of much more than 2.00%.

Over the same 20-year period, Irish mortgage rates averaged 4.36%.

So, over that 20-year period the risk of investing in equities didn’t pay off - you would have been far better off paying down your mortgage.

IMO it rarely makes sense to invest in equities outside a pension while carrying a mortgage.

Simplicity is the ultimate sophistication - just pay down your mortgage.
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Whilst using historical analysis is useful its not always that important when making forward looking financial decisions, and suffers from selection bias. Mortgage rates now are significantly lower than 4.36% reducing the hurdle rate, in addition there is an influx of low cost investment options that were not available previously, so the landscape today is different to 20 years previously.

Can I query your 4% number as looking at historical S&P annual returns the average is closer to 7% from 2000 to now.

Tax treatment / CGT and ETF deemed disposal is incredibly punitive for Irish retail investor. I favour maximising stock market exposure through AVCs before paying down a mortgage at the current costs. From remaining cash flow I try to maximise the CGT allowance through share investment and paying down mortgage.

Ultimately it is almost a zero sum game. If you use free cash flow to pay down a mortgage 3 years ahead of the contracted terms (i.e. 27 years from now), you will increase your monthly free cash flow (mortgage payment) in 27 years time. You will then have to decide how to put that money to work for a shorter period of time. The alternate option is to put the current free cash flow to work in the stock market or other investment vehicles for the entire 30 years period whilst not overpaying your mortgage. At the end of the 30 years you end up mortgage free with an investment worth +/- x%. Or you can do a mixture of both 50% of free cash flow goes to mortgage etc.

You end up with the same result of mortgage freedom the decision to make is how you want to get there. Given that a house is largely a dead asset i.e. you can't profit from it whilst living in it, there is no real benefit to paying off the mortgage slightly earlier than the contracted terms in comparison to the potential returns in the stock market.

Obviously this changes dependent on length of mortgage, age etc and is why an individuals own circumstances are important and that blanket advice should not be applied.
 
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So you are overpaying your mortgage and getting the term down from 40 year to 25 years.

That's a lot of living and a lot of expenditure in that time, including the other major cost in life, children's education. How are you supposed to finance that? All your money has gone into paying down your mortgage, which is still outstanding. You can't sell a room. Maybe rent one out?
 
RedOnion said:
What are they for a Euro based investor?
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Its the concept of investing in the stock market we should discuss rather than the specific investment over a x amount of time.

Or it could be easily said a person who invested in Amazon 20 years ago would have beat the guaranteed return of paying down a mortgage.

Equities are a risky asset class, hence they can outperform (even after exchange rate, fees, management charges) the guarantee return offered by paying down a mortgage.

There is a place for that in every portfolio in my opinion.
 
Sarenco said:
I’ve just done that exercise (see my previous post) and paying down the mortgage ca
Dublinbay12 said:
Its the concept of investing in the stock market we should discuss rather than the specific investment over a x amount of time.

Or it could be easily said a person who invested in Amazon 20 years ago would have beat the guaranteed return of paying down a mortgage.

Equities are a risky asset class, hence they can outperform (even after exchange rate, fees, management charges) the guarantee return offered by paying down a mortgage.

There is a place for that in every portfolio in my opinion.
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interesting discussion all the same. I guess it all comes down to personal tolerance for risk.
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Dublinbay12 said:
Equities are a risky asset class, hence they can outperform (even after exchange rate, fees, management charges) the guarantee return offered by paying down a mortgage
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"can" is the key word here. There's nothing guaranteed about it.

I don't agree with a blanket approach being right for everyone either.

But sometimes people don't realise what they are doing.

If you ask the question: "Would you borrow at mortgage rates to invest, with investment returns subject to Irish taxation?".

If the answer is yes, then work ahead. That's your risk appetite.

But sometimes people say no. Then they go and invest (through whatever vehicle / asset class they choose) although carrying a mortgage debt. They're effectively doing what they said they wouldn't do.

Or they might not realise they already have substantial exposure to other asset classes (via their pension).

And then you get people doing silly things - there have been posts here before where people were investing in government bonds at rates far below their mortgage rate without realising what they're doing.

Then you have the psychological (and practical) aspects of having money for specific purposes - e.g. starting to put money into a savings account when a child is born to pay for their college fees. From a purely mathematical point if view it makes far more sense to pay the mortgage, but people like having 'pots', or don't realise the flexibility available in mortgage repayments with some lenders.
 
One thing to note is you have all your eggs in one basket with that particular share, far from ideal and not something I would recommend
 
RedOnion said:
"can" is the key word here. There's nothing guaranteed about it.

I don't agree with a blanket approach being right for everyone either.

But sometimes people don't realise what they are doing.

If you ask the question: "Would you borrow at mortgage rates to invest, with investment returns subject to Irish taxation?".

If the answer is yes, then work ahead. That's your risk appetite.

But sometimes people say no. Then they go and invest (through whatever vehicle / asset class they choose) although carrying a mortgage debt. They're effectively doing what they said they wouldn't do.

Or they might not realise they already have substantial exposure to other asset classes (via their pension).

And then you get people doing silly things - there have been posts here before where people were investing in government bonds at rates far below their mortgage rate without realising what they're doing.

Then you have the psychological (and practical) aspects of having money for specific purposes - e.g. starting to put money into a savings account when a child is born to pay for their college fees. From a purely mathematical point if view it makes far more sense to pay the mortgage, but people like having 'pots', or don't realise the flexibility available in mortgage repayments with some lenders.
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I agree 100% and hence why I've been referring to it as risk profile or as you put it risk appetite.

I don't agree with the blanket approach or the notion that people financial situations aren't different. It leads to the notion that there is no need for an investment or financial advisor industry.

My opinion is that there is an education aspect to it for each individual to understand options and then options need to be looked hollistically in the context of that persons circumstances and their situations to be re-evaluated on an annual basis.
 
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