02-20-2014, 09:02 PM
Hi Ronn –
Sorry to hear this news. I’m sure it cannot be easy, but I am glad to hear that it is generally amicable. With luck, it means brighter futures for both of you.
My very first thought is that if you plan to pay off the house in no more than one year, and the balance is only $50,000, it may not make a lot of sense to worry about trying to squeeze every dollar out of the deal. If you cash out the bonds and put them into dividend stocks, your net after one year will be – very roughly – $50,000 multiplied by the difference between the yield of those socks and the 5.15% interest rate on the mortgage. Let’s say you put it into something yielding 7.00 percent (I’m thinking ARCP just as an example). $50,000 * (.07 - .0515) = $925. Let’s call it $900 after transaction costs.
You’ve got to weigh that $900 gain against the market risk involved with anything yielding over 5.15%. I think something like ARCP is a pretty good bet, but one year is a pretty short time horizon, and you need to sell at the end of that year to pay off the balance of the mortgage. If you experience a price decline, it could wash away all of the potential benefit of doing it this way and you may have to come up with more cash.
Your temperament may be very different from mine, but the upside does not feel worth the risk to me. I’d sell the bonds and pay the thing off and be done with it. If you didn’t have to pay it off in a year – if you could just use the dividends to pay down the mortgage over time – I might feel differently.
Let me know if I have misunderstood what you’re considering.
Hang in there!
Sorry to hear this news. I’m sure it cannot be easy, but I am glad to hear that it is generally amicable. With luck, it means brighter futures for both of you.
My very first thought is that if you plan to pay off the house in no more than one year, and the balance is only $50,000, it may not make a lot of sense to worry about trying to squeeze every dollar out of the deal. If you cash out the bonds and put them into dividend stocks, your net after one year will be – very roughly – $50,000 multiplied by the difference between the yield of those socks and the 5.15% interest rate on the mortgage. Let’s say you put it into something yielding 7.00 percent (I’m thinking ARCP just as an example). $50,000 * (.07 - .0515) = $925. Let’s call it $900 after transaction costs.
You’ve got to weigh that $900 gain against the market risk involved with anything yielding over 5.15%. I think something like ARCP is a pretty good bet, but one year is a pretty short time horizon, and you need to sell at the end of that year to pay off the balance of the mortgage. If you experience a price decline, it could wash away all of the potential benefit of doing it this way and you may have to come up with more cash.
Your temperament may be very different from mine, but the upside does not feel worth the risk to me. I’d sell the bonds and pay the thing off and be done with it. If you didn’t have to pay it off in a year – if you could just use the dividends to pay down the mortgage over time – I might feel differently.
Let me know if I have misunderstood what you’re considering.
Hang in there!