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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 - PowerPoint PPT Presentation
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Mortgage Payoff –When & Why?
David E. Hultstrom, MBA, CFP
Outline
1. Clarifying the Question2. The Math Part3. The Human Part4. Observations & Examples
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
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!
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
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
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
David Hultstrom, MBA, CFP Financial Architects, LLC
804-795-5500 [email protected]
om
www.FinancialArchitectsLLC.com
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