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  • FIRST POST
    • C_Mababejive
    • By C_Mababejive 5th Jul 18, 6:45 PM
    • 10,496Posts
    • 9,440Thanks
    C_Mababejive
    What would you do? Mortgage V investment income
    • #1
    • 5th Jul 18, 6:45 PM
    What would you do? Mortgage V investment income 5th Jul 18 at 6:45 PM
    Consider this scenario...

    You have an investment portfolio which generates maybe 10k pa

    You have a mortgage which costs 6k pa



    If you sell all your investments you can pay off the mortgage

    Would you;

    a) sell all the investments and pay off the mortgage
    b) keep paying the mortgage out of investment income

    Im just keeping it simple as a base principle rather than getting into complexities such as tax etc

    Obviously with b you would retain the capital (hopefully with some growth) and still be able to pay the mortgage plus have a bit left over.
    Feudal Britain needs land reform. 70% of the land is "owned" by 1 % of the population and at least 50% is unregistered (inherited by landed gentry). Thats why your slave box costs so much..
Page 1
    • Thrugelmir
    • By Thrugelmir 5th Jul 18, 6:58 PM
    • 59,251 Posts
    • 52,622 Thanks
    Thrugelmir
    • #2
    • 5th Jul 18, 6:58 PM
    • #2
    • 5th Jul 18, 6:58 PM
    Obviously with b you would retain the capital (hopefully with some growth) and still be able to pay the mortgage plus have a bit left over.
    Originally posted by C_Mababejive
    Why obviously?

    What equities is your portfolio holding?
    Financial disasters happen when the last person who can remember what went wrong last time has left the building.
    • Wildsound
    • By Wildsound 5th Jul 18, 7:13 PM
    • 66 Posts
    • 39 Thanks
    Wildsound
    • #3
    • 5th Jul 18, 7:13 PM
    • #3
    • 5th Jul 18, 7:13 PM
    I know it's not the answer you want, but it's not as simple as A or B. You have to consider a whole range of factors (e.g. age, goals, other debt, income, other savings, LTV etc...). Once you consider all these, you could end up with the answer being, A, B or a new C.
    • C_Mababejive
    • By C_Mababejive 6th Jul 18, 7:50 AM
    • 10,496 Posts
    • 9,440 Thanks
    C_Mababejive
    • #4
    • 6th Jul 18, 7:50 AM
    • #4
    • 6th Jul 18, 7:50 AM
    Why obviously?

    What equities is your portfolio holding?
    Originally posted by Thrugelmir
    Yes i accept what you are suggesting. I was just making a broad statement rather than a detailed case..
    Feudal Britain needs land reform. 70% of the land is "owned" by 1 % of the population and at least 50% is unregistered (inherited by landed gentry). Thats why your slave box costs so much..
    • LobsterMemory
    • By LobsterMemory 6th Jul 18, 8:02 AM
    • 41 Posts
    • 12 Thanks
    LobsterMemory
    • #5
    • 6th Jul 18, 8:02 AM
    • #5
    • 6th Jul 18, 8:02 AM
    If you're looking for a simplistic rationale:

    If the %age yield on the investment portfolio is better than the mortgage interest rate, keep the portfolio
    • AnotherJoe
    • By AnotherJoe 6th Jul 18, 8:02 AM
    • 9,856 Posts
    • 11,020 Thanks
    AnotherJoe
    • #6
    • 6th Jul 18, 8:02 AM
    • #6
    • 6th Jul 18, 8:02 AM
    Yes i accept what you are suggesting. I was just making a broad statement rather than a detailed case..
    Originally posted by C_Mababejive

    The broad "statement" is meaningless though, as said it depends upon too many factors to have a simplistic answer.
    • Terry Towelling
    • By Terry Towelling 6th Jul 18, 1:28 PM
    • 210 Posts
    • 107 Thanks
    Terry Towelling
    • #7
    • 6th Jul 18, 1:28 PM
    • #7
    • 6th Jul 18, 1:28 PM
    You may struggle to get consensus on this question; it comes up a lot.

    Are you saying that your investment dividend income covers the 'cost' of the mortgage (i.e. the interest only) or are you saying it covers your entire monthly mortgage repayments?

    Without knowing how big your portfolio is and what interest rate/size of mortgage you have, it is hard to know which course of action is best for you. If they are both of similar size, that might suggest running both simultaneously would be best. It also depends on what you do with your investment return (which may be subject to tax if not from an ISA) - do you risk reinvesting it or do you take it as cash and actually pay the mortgage?

    One poster in a thread from some time ago (sorry, can't remember who) turned the question on its head, and that is possibly a way to uncover how you actually feel about the issue rather than trying to enshrine it in purely financial terms.

    If you had no mortgage and little or no investment portfolio, would you be happy to take out a mortgage on your property to then invest that sum in enlarging/creating your portfolio on the basis that it should cover your mortgage payments? If the answer is 'No, you wouldn't be happy to do that' then, psychologically, it would suggest you'd be happier paying off the mortgage.

    The only course of action that has a fully-predictable, totally guaranteed and measurable outcome is clearing the mortgage because you never know what the market will do.
    • TBC15
    • By TBC15 6th Jul 18, 5:51 PM
    • 510 Posts
    • 259 Thanks
    TBC15
    • #8
    • 6th Jul 18, 5:51 PM
    • #8
    • 6th Jul 18, 5:51 PM
    OP Could you put the post in % terms please.
    • Audaxer
    • By Audaxer 7th Jul 18, 8:55 PM
    • 1,164 Posts
    • 684 Thanks
    Audaxer
    • #9
    • 7th Jul 18, 8:55 PM
    • #9
    • 7th Jul 18, 8:55 PM
    In a really bad equity crash, the investment income could dry up for a while, so if that income was your only means of paying the mortgage payments, it would be safer to sell investments to pay off the mortgage.
    • Thrugelmir
    • By Thrugelmir 7th Jul 18, 9:06 PM
    • 59,251 Posts
    • 52,622 Thanks
    Thrugelmir
    In a really bad equity crash, the investment income could dry up for a while,
    Originally posted by Audaxer
    BP suspended it's dividend for 3 quarters then reduced it. Doesn't require a market crash for individual companies to fail to deliver.
    Financial disasters happen when the last person who can remember what went wrong last time has left the building.
    • Audaxer
    • By Audaxer 8th Jul 18, 10:53 PM
    • 1,164 Posts
    • 684 Thanks
    Audaxer
    BP suspended it's dividend for 3 quarters then reduced it. Doesn't require a market crash for individual companies to fail to deliver.
    Originally posted by Thrugelmir
    True for individual shares, but I would think only a bad equity crash would result in good diversified funds not paying dividends?
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