Would you pay off a mortgage of 2.25% using a margin loan of 1.25%?

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worthit
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Would you pay off a mortgage of 2.25% using a margin loan of 1.25%?

Post by worthit »

Hello BHs:

Trying to see if it makes sense to pay off some, most or the entire mortgage using a 1.25% margin loan.

- 29 years remaining off the mortgage @2.25% fixed rate. Outstanding mortgage - $575,000 (current house value - $950,000)
- Live in a SALT cap state.
- SWAN and do not feel the need to pay off the mortgage.
- Comfortable carrying a mortgage during retirement.

I realize that I cannot deduct the interest if I use for anything else other than purchasing equities. So it could be a wash post-tax (?), I think. But wanted to run this by this esteemed group to see if it is even worthit.

TIA.
exodusNH
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Re: Would you pay off a mortgage of 2.25% using a margin loan of 1.25%?

Post by exodusNH »

worthit wrote: Tue Sep 21, 2021 9:32 am Hello BHs:

Trying to see if it makes sense to pay off some, most or the entire mortgage using a 1.25% margin loan.

- 29 years remaining off the mortgage @2.25% fixed rate. Outstanding mortgage - $575,000 (current house value - $950,000)
- Live in a SALT cap state.
- SWAN and do not feel the need to pay off the mortgage.
- Comfortable carrying a mortgage during retirement.

I realize that I cannot deduct the interest if I use for anything else other than purchasing equities. So it could be a wash post-tax (?), I think. But wanted to run this by this esteemed group to see if it is even worthit.

TIA.
How will you handle a margin call if the market drops 40%? (Some brokers will simply automatically sell your holdings -- without warning -- to bring you in compliance.) How will you pay off the margin loan if the interest rate increases to 4%? (Margin loans are not fixed rate.)
KlangFool
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Re: Would you pay off a mortgage of 2.25% using a margin loan of 1.25%?

Post by KlangFool »

Just say no!!

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Topic Author
worthit
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Re: Would you pay off a mortgage of 2.25% using a margin loan of 1.25%?

Post by worthit »

exodusNH wrote: Tue Sep 21, 2021 9:35 am
worthit wrote: Tue Sep 21, 2021 9:32 am Hello BHs:

Trying to see if it makes sense to pay off some, most or the entire mortgage using a 1.25% margin loan.

- 29 years remaining off the mortgage @2.25% fixed rate. Outstanding mortgage - $575,000 (current house value - $950,000)
- Live in a SALT cap state.
- SWAN and do not feel the need to pay off the mortgage.
- Comfortable carrying a mortgage during retirement.

I realize that I cannot deduct the interest if I use for anything else other than purchasing equities. So it could be a wash post-tax (?), I think. But wanted to run this by this esteemed group to see if it is even worthit.

TIA.
How will you handle a margin call if the market drops 40%? (Some brokers will simply automatically sell your holdings -- without warning -- to bring you in compliance.) How will you pay off the margin loan if the interest rate increases to 4%? (Margin loans are not fixed rate.)
Thanks for responding. Fair question.

This amount ($575K) would amount to 38% of the margin. I can bring it down to 23% if I want to as well.

Another thought I had was to pay off about $100K or $200K.
Topic Author
worthit
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Re: Would you pay off a mortgage of 2.25% using a margin loan of 1.25%?

Post by worthit »

KlangFool wrote: Tue Sep 21, 2021 9:40 am Just say no!!

KlangFool

Thanks Klang F for responding.

Much appreciated.
Somethingwitty92912
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Re: Would you pay off a mortgage of 2.25% using a margin loan of 1.25%?

Post by Somethingwitty92912 »

Hard pass. The mortgage may as well be free money held to maturity. Why take the risk?
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retiredjg
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Re: Would you pay off a mortgage of 2.25% using a margin loan of 1.25%?

Post by retiredjg »

No. Would not even consider it.
Topic Author
worthit
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Re: Would you pay off a mortgage of 2.25% using a margin loan of 1.25%?

Post by worthit »

Somethingwitty92912 wrote: Tue Sep 21, 2021 9:42 am Hard pass. The mortgage may as well be free money held to maturity. Why take the risk?
Thanks for responding.

This is what is making me pause and not go with this risky move.
Topic Author
worthit
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Re: Would you pay off a mortgage of 2.25% using a margin loan of 1.25%?

Post by worthit »

retiredjg wrote: Tue Sep 21, 2021 9:43 am No. Would not even consider it.
Thank you.
alex_686
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Re: Would you pay off a mortgage of 2.25% using a margin loan of 1.25%?

Post by alex_686 »

Let us flip the question. Which is better:

A free float loan. Currently at 1.25% but could be significant higher in the next 25 years?

A fixed rate loan of 2.25% for 29 years.

I will tell you that a spread of 100 bps spread between a 29 fixed-to-float is a great rate. I would go fixed.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
Topic Author
worthit
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Re: Would you pay off a mortgage of 2.25% using a margin loan of 1.25%?

Post by worthit »

alex_686 wrote: Tue Sep 21, 2021 9:47 am Let us flip the question. Which is better:

A free float loan. Currently at 1.25% but could be significant higher in the next 25 years?

A fixed rate loan of 2.25% for 29 years.

I will tell you that a spread of 100 bps spread between a 29 fixed-to-float is a great rate. I would go fixed.
Thanks alex-686 for responding. Never have thought through it this way. I am SOLD!

Btw, I learn a lot from your postings. Appreciate the insights. Thank you.
exodusNH
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Re: Would you pay off a mortgage of 2.25% using a margin loan of 1.25%?

Post by exodusNH »

worthit wrote: Tue Sep 21, 2021 9:40 am
exodusNH wrote: Tue Sep 21, 2021 9:35 am
worthit wrote: Tue Sep 21, 2021 9:32 am Hello BHs:

Trying to see if it makes sense to pay off some, most or the entire mortgage using a 1.25% margin loan.

- 29 years remaining off the mortgage @2.25% fixed rate. Outstanding mortgage - $575,000 (current house value - $950,000)
- Live in a SALT cap state.
- SWAN and do not feel the need to pay off the mortgage.
- Comfortable carrying a mortgage during retirement.

I realize that I cannot deduct the interest if I use for anything else other than purchasing equities. So it could be a wash post-tax (?), I think. But wanted to run this by this esteemed group to see if it is even worthit.

TIA.
How will you handle a margin call if the market drops 40%? (Some brokers will simply automatically sell your holdings -- without warning -- to bring you in compliance.) How will you pay off the margin loan if the interest rate increases to 4%? (Margin loans are not fixed rate.)
Thanks for responding. Fair question.

This amount ($575K) would amount to 38% of the margin. I can bring it down to 23% if I want to as well.

Another thought I had was to pay off about $100K or $200K.
Mathematically, that might work out, but how would you handle a margin call, assuming the broker even offered that an option? (As I mentioned, some will simply sell securities without warning.) Or, if the interest rate rises, how would you pay it off?

If you just have cash laying around that you don't know what to do with, you could make a lump sum against the mortgage. If your mortgage company will "recast" the mortgage, that will lower your monthly payment. Otherwise, prepaying simply cuts down the duration of your mortgage, not the payment.
JackoC
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Re: Would you pay off a mortgage of 2.25% using a margin loan of 1.25%?

Post by JackoC »

exodusNH wrote: Tue Sep 21, 2021 9:35 am
worthit wrote: Tue Sep 21, 2021 9:32 am Hello BHs:

Trying to see if it makes sense to pay off some, most or the entire mortgage using a 1.25% margin loan.

- 29 years remaining off the mortgage @2.25% fixed rate. Outstanding mortgage - $575,000 (current house value - $950,000)
- Live in a SALT cap state.
- SWAN and do not feel the need to pay off the mortgage.
- Comfortable carrying a mortgage during retirement.

I realize that I cannot deduct the interest if I use for anything else other than purchasing equities. So it could be a wash post-tax (?), I think. But wanted to run this by this esteemed group to see if it is even worthit.
1. How will you handle a margin call if the market drops 40%? (Some brokers will simply automatically sell your holdings -- without warning -- to bring you in compliance.)
2. How will you pay off the margin loan if the interest rate increases to 4%? (Margin loans are not fixed rate.)
1. Points to the big gap in information: how big are the stock holdings against which OP would borrow? If the stocks are now worth $770k assuming 75% loan to value (approx allowed at IBKR, OP didn't specify broker) they'd start liquidating your positions on a 0.5% market drop. If the stock portfolio is $3.5mil the answer to how you'd handle a 40% market drop is 'do nothing', since the borrowing would still only be 28% of stock value after the drop.

2. Fixed vs. floating is a basic question of risk preference in a case like this. And general market risk preference is what results in the term premium. The term premium is the difference between expected value of the compounded short term rate and the current long term rate to the same future point. It's generally been positive historically, IOW floating rate borrowers have more often than not been rewarded for taking the risk of short term rates going up more than expected. So it depends on your ability and willingness to take the risk, no fixed answer, and just pointing out the floating rate *could* go up mean you should lock it in. However, analytical models which seek to determine the term premium now tend to say it's low or even negative (central banks repressing long term rates may have resulted in a situation where compounding future short term rates to term actually has a higher expected value than current long term rates). Anyway it's a risk choice.

The other thing is 2.25% 29 yrs is considerably lower than the average 30 yr mortgage rate now (3.05%). The other question being, it actually comes before point 2, what's the spread to the riskless curve in each case? For the margin rate it's basically 1.25% over riskless, approximating the overnight riskless rate as 0 (or call it 1.20% or something if you like). A 30 yr mortgage has around 18 yr avg life 18 yr interpolated point on the treasury curve is ~1.69%, so that mortgage rate is only 0.56% over the riskless curve, and contains a prepayment option. We can at least say the margin rate is not nearly as attractive in this case as it would be vs. the average 3.05% 30 yr mortgage now.

On tax the direct issue isn't the SALT deduction, but what % of your mortgage interest is deductible considering SALT and everything else, and what's your marginal tax rate? That could greatly tilt things further toward the mortgage. As you say the margin interest would not be deductible in a simple transaction of withdrawing on margin from the brokerage account to pay off the mortgage. In a more complicated transaction where you liquidated assets in the brokerage account to pay off the mortgage then after a 'decent interval' borrowed on margin to replace them, the margin interest could be deductible (with other caveats). But that also depends on capital gains tax situation favorable to liquidating that amount of assets in the brokerage account.

Without the missing info still looks like that's a now below market mortgage rate and you'd keep it.
Last edited by JackoC on Tue Sep 21, 2021 10:07 am, edited 1 time in total.
Miguelito
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Re: Would you pay off a mortgage of 2.25% using a margin loan of 1.25%?

Post by Miguelito »

Also a hard pass for me.

The risk:reward is just not there. Not even close. Even if the duration were 5 years I would still pass, much less on a longer term loan.
Topic Author
worthit
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Re: Would you pay off a mortgage of 2.25% using a margin loan of 1.25%?

Post by worthit »

exodusNH wrote: Tue Sep 21, 2021 9:57 am
worthit wrote: Tue Sep 21, 2021 9:40 am
exodusNH wrote: Tue Sep 21, 2021 9:35 am
worthit wrote: Tue Sep 21, 2021 9:32 am Hello BHs:

Trying to see if it makes sense to pay off some, most or the entire mortgage using a 1.25% margin loan.

- 29 years remaining off the mortgage @2.25% fixed rate. Outstanding mortgage - $575,000 (current house value - $950,000)
- Live in a SALT cap state.
- SWAN and do not feel the need to pay off the mortgage.
- Comfortable carrying a mortgage during retirement.

I realize that I cannot deduct the interest if I use for anything else other than purchasing equities. So it could be a wash post-tax (?), I think. But wanted to run this by this esteemed group to see if it is even worthit.

TIA.
How will you handle a margin call if the market drops 40%? (Some brokers will simply automatically sell your holdings -- without warning -- to bring you in compliance.) How will you pay off the margin loan if the interest rate increases to 4%? (Margin loans are not fixed rate.)
Thanks for responding. Fair question.

This amount ($575K) would amount to 38% of the margin. I can bring it down to 23% if I want to as well.

Another thought I had was to pay off about $100K or $200K.
Mathematically, that might work out, but how would you handle a margin call, assuming the broker even offered that an option? (As I mentioned, some will simply sell securities without warning.) Or, if the interest rate rises, how would you pay it off?

If you just have cash laying around that you don't know what to do with, you could make a lump sum against the mortgage. If your mortgage company will "recast" the mortgage, that will lower your monthly payment. Otherwise, prepaying simply cuts down the duration of your mortgage, not the payment.
Thanks ExodusNH.

I believe my custodian provides 24-72 hours to replenish the funds. But an interest rate hike is what I am mostly worried about. As alex_686 highlighted upthread, I think it would be financially ruinous and risky to do this while the fixed rate may end up literally being free money long term.

Your point about this reducing the duration and not the outstanding amount is also a good one. Why go through this then. Right?

So I have decided to drop this idea and stick with my fixed/monthly payments.

Thanks for reinforcing.
alex_686
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Re: Would you pay off a mortgage of 2.25% using a margin loan of 1.25%?

Post by alex_686 »

worthit wrote: Tue Sep 21, 2021 10:07 am I believe my custodian provides 24-72 hours to replenish the funds.
Maybe. I used to work the margin desk.

That is the general courtesy that most brokerages extend to their clients. However then can liquidate your portfolio at any time for any reason and without giving notice. The primary rule of margin is that the firm needs to protect itself. There have been a fair number of cases where a client blew up on margin causing the firm to blow up. If it looks like there is a chance the account will go negative we would pull the trigger and start liquidating.

Now maybe your portfolio is not stuffed full of dot.com stocks during the dot.com bust. Maybe you have a well diversified portfolio of broad based ETFS. And maybe something similar to 9/11 will not happen again. And I will admit that I have a weird relationship with margin and leverage. But if you go on margin you should not have any illusions.
Last edited by alex_686 on Tue Sep 21, 2021 10:19 am, edited 1 time in total.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
Topic Author
worthit
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Re: Would you pay off a mortgage of 2.25% using a margin loan of 1.25%?

Post by worthit »

JackoC wrote: Tue Sep 21, 2021 10:06 am
exodusNH wrote: Tue Sep 21, 2021 9:35 am
worthit wrote: Tue Sep 21, 2021 9:32 am Hello BHs:

Trying to see if it makes sense to pay off some, most or the entire mortgage using a 1.25% margin loan.

- 29 years remaining off the mortgage @2.25% fixed rate. Outstanding mortgage - $575,000 (current house value - $950,000)
- Live in a SALT cap state.
- SWAN and do not feel the need to pay off the mortgage.
- Comfortable carrying a mortgage during retirement.

I realize that I cannot deduct the interest if I use for anything else other than purchasing equities. So it could be a wash post-tax (?), I think. But wanted to run this by this esteemed group to see if it is even worthit.
1. How will you handle a margin call if the market drops 40%? (Some brokers will simply automatically sell your holdings -- without warning -- to bring you in compliance.)
2. How will you pay off the margin loan if the interest rate increases to 4%? (Margin loans are not fixed rate.)
1. Points to the big gap in information: how big are the stock holdings against which OP would borrow? If the stocks are now worth $770k assuming 75% loan to value (approx allowed at IBKR, OP didn't specify broker) they'd start liquidating your positions on a 0.5% market drop. If the stock portfolio is $3.5mil the answer to how you'd handle a 40% market drop is 'do nothing', since the borrowing would still only be 28% of stock value after the drop.

2. Fixed vs. floating is a basic question of risk preference in a case like this. And general market risk preference is what results in the term premium. The term premium is the difference between expected value of the compounded short term rate and the current long term rate to the same future point. It's generally been positive historically, IOW floating rate borrowers have more often than not been rewarded for taking the risk of short term rates going up more than expected. So it depends on your ability and willingness to take the risk, no fixed answer, and just pointing out the floating rate *could* go up mean you should lock it in. However, analytical models which seek to determine the term premium now tend to say it's low or even negative (central banks repressing long term rates may have resulted in a situation where compounding future short term rates to term actually has a higher expected value than current long term rates). Anyway it's a risk choice.

The other thing is 2.25% 29 yrs is considerably lower than the average 30 yr mortgage rate now (3.05%). The other question being, it actually comes before point 2, what's the spread to the riskless curve in each case? For the margin rate it's basically 1.25% over riskless, approximating the overnight riskless rate as 0 (or call it 1.20% or something if you like). A 30 yr mortgage has around 18 yr avg life 18 yr interpolated point on the treasury curve is ~1.69%, so that mortgage rate is only 0.56% over the riskless curve, and contains a prepayment option. We can at least say the margin rate is not nearly as attractive in this case as it would be vs. the average 3.05% 30 yr mortgage now.

On tax the direct issue isn't the SALT deduction, but what % of your mortgage interest is deductible considering SALT and everything else, and what's your marginal tax rate? That could greatly tilt things further toward the mortgage. As you say the margin interest would not be deductible in a simple transaction of withdrawing on margin from the brokerage account to pay off the mortgage. In a more complicated transaction where you liquidated assets in the brokerage account to pay off the mortgage then after a 'decent interval' borrowed on margin to replace them, the margin interest could be deductible (with other caveats). But that also depends on capital gains tax situation favorable to liquidating that amount of assets in the brokerage account.

Without the missing info still looks like that's a now below market mortgage rate and you'd keep it.
Thank JackoC for responding.

1. $2.5MM

2. Very high appetite for calculated risk (not speculative)

3. 35% Marginal tax bracket
Escapevelocity
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Re: Would you pay off a mortgage of 2.25% using a margin loan of 1.25%?

Post by Escapevelocity »

That margin rate is too uncertain. No way would I even consider this and 2.25% is an amazing rate for the mortgage.
exodusNH
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Re: Would you pay off a mortgage of 2.25% using a margin loan of 1.25%?

Post by exodusNH »

worthit wrote: Tue Sep 21, 2021 10:07 am Thanks ExodusNH.

I believe my custodian provides 24-72 hours to replenish the funds. But an interest rate hike is what I am mostly worried about. As alex_686 highlighted upthread, I think it would be financially ruinous and risky to do this while the fixed rate may end up literally being free money long term.

Your point about this reducing the duration and not the outstanding amount is also a good one. Why go through this then. Right?

So I have decided to drop this idea and stick with my fixed/monthly payments.

Thanks for reinforcing.
If your mortgage company will "recast" the mortgage, maybe for a small fee (<$250), it will lower your payment. In that case, it can make sense to lump sum it down. Prepaying your mortgage gives you an immediate return on your cash that will be higher than the risk-free rate you can get. If you just have cash laying around that you don't want to put into the market, it's a reasonable option.
JackoC
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Re: Would you pay off a mortgage of 2.25% using a margin loan of 1.25%?

Post by JackoC »

worthit wrote: Tue Sep 21, 2021 10:15 am
JackoC wrote: Tue Sep 21, 2021 10:06 am
exodusNH wrote: Tue Sep 21, 2021 9:35 am
worthit wrote: Tue Sep 21, 2021 9:32 am Hello BHs:

Trying to see if it makes sense to pay off some, most or the entire mortgage using a 1.25% margin loan.

- 29 years remaining off the mortgage @2.25% fixed rate. Outstanding mortgage - $575,000 (current house value - $950,000)
- Live in a SALT cap state.
- SWAN and do not feel the need to pay off the mortgage.
- Comfortable carrying a mortgage during retirement.

I realize that I cannot deduct the interest if I use for anything else other than purchasing equities. So it could be a wash post-tax (?), I think. But wanted to run this by this esteemed group to see if it is even worthit.
1. How will you handle a margin call if the market drops 40%? (Some brokers will simply automatically sell your holdings -- without warning -- to bring you in compliance.)
2. How will you pay off the margin loan if the interest rate increases to 4%? (Margin loans are not fixed rate.)
1. Points to the big gap in information: how big are the stock holdings against which OP would borrow? If the stocks are now worth $770k assuming 75% loan to value (approx allowed at IBKR, OP didn't specify broker) they'd start liquidating your positions on a 0.5% market drop. If the stock portfolio is $3.5mil the answer to how you'd handle a 40% market drop is 'do nothing', since the borrowing would still only be 28% of stock value after the drop.

2. Fixed vs. floating is a basic question of risk preference in a case like this. And general market risk preference is what results in the term premium. The term premium is the difference between expected value of the compounded short term rate and the current long term rate to the same future point. It's generally been positive historically, IOW floating rate borrowers have more often than not been rewarded for taking the risk of short term rates going up more than expected. So it depends on your ability and willingness to take the risk, no fixed answer, and just pointing out the floating rate *could* go up mean you should lock it in. However, analytical models which seek to determine the term premium now tend to say it's low or even negative (central banks repressing long term rates may have resulted in a situation where compounding future short term rates to term actually has a higher expected value than current long term rates). Anyway it's a risk choice.

The other thing is 2.25% 29 yrs is considerably lower than the average 30 yr mortgage rate now (3.05%). The other question being, it actually comes before point 2, what's the spread to the riskless curve in each case? For the margin rate it's basically 1.25% over riskless, approximating the overnight riskless rate as 0 (or call it 1.20% or something if you like). A 30 yr mortgage has around 18 yr avg life 18 yr interpolated point on the treasury curve is ~1.69%, so that mortgage rate is only 0.56% over the riskless curve, and contains a prepayment option. We can at least say the margin rate is not nearly as attractive in this case as it would be vs. the average 3.05% 30 yr mortgage now.

On tax the direct issue isn't the SALT deduction, but what % of your mortgage interest is deductible considering SALT and everything else, and what's your marginal tax rate? That could greatly tilt things further toward the mortgage. As you say the margin interest would not be deductible in a simple transaction of withdrawing on margin from the brokerage account to pay off the mortgage. In a more complicated transaction where you liquidated assets in the brokerage account to pay off the mortgage then after a 'decent interval' borrowed on margin to replace them, the margin interest could be deductible (with other caveats). But that also depends on capital gains tax situation favorable to liquidating that amount of assets in the brokerage account.

Without the missing info still looks like that's a now below market mortgage rate and you'd keep it.
Thank JackoC for responding.

1. $2.5MM

2. Very high appetite for calculated risk (not speculative)

3. 35% Marginal tax bracket
Again also depends on what other deductions you have, but seems implied you 'fill up' the $10k of SALT allowance, and single? so SALT close to standard deduction and most of mortgage interest is deductible. Therefore after tax mortgage rate considerably less than 2.25%. And again that's already 80bps below current market average. ANd the key relative value metric would be spread to the curve of the margin rate and mortgage rate. Below market mortgage even pre tax is closer to the riskless curve in your case than the margin rate is, IOW figuring that a lot of the difference between 1.69% 18 yr treasury rate ~0% 0 yr treasury rate is expectation of higher short term rates in the future, rather than 0% just being a 1.69% better rate even if indifferent to risk. Some of the difference could be 'term premium' (risk premium available to harvest by floating rate borrowers for taking that risk) but analytical models now tend to predict a low or even negative term premium. The mortgage looks better in this case IMO and I'm not anti margin loan (I use margin loans in my real estate LLC to fund properties, commercial loan rates a new one of which now would be considerably higher than your mortgage rate, lenders make you jump through various hoops vs. just withdrawing the money with zero paper work from IBKR, and margin loan interest is the LLC's business expense so fully deductible).
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Re: Would you pay off a mortgage of 2.25% using a margin loan of 1.25%?

Post by harikaried »

worthit wrote: Tue Sep 21, 2021 9:32 amTrying to see if it makes sense to pay off some… mortgage using a 1.25% margin loan
How much would you be wanting to pay down to try it out? Say you take $100k on margin at 1.25% to pay down 2.25% mortgage. Your mortgage payments wouldn't change unless you recast or refinance, but you also don't have required payments on the margin either if you want the interest to increase the balance. Does your cash flow support paying down both? Is the savings of 1% interest on $100k for $1k/year worthwhile?
texas lawdog
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Re: Would you pay off a mortgage of 2.25% using a margin loan of 1.25%?

Post by texas lawdog »

I think the margin loan is a variable rate and seems like you are trading the risk of a fixed loan for a variable loan (esp. since rates may rise in the future). Seems like it is hardly worth taking the risk and wouldn't take it unless you needed the additional cash flow and flexibility.

Good luck
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Re: Would you pay off a mortgage of 2.25% using a margin loan of 1.25%?

Post by drk »

I see that you're already sold, but I wonder which state you're in. If your mortgage is non-recourse, that's even more reason not to pay it off with a callable loan.
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Re: Would you pay off a mortgage of 2.25% using a margin loan of 1.25%?

Post by grabiner »

texas lawdog wrote: Tue Sep 21, 2021 6:18 pm I think the margin loan is a variable rate and seems like you are trading the risk of a fixed loan for a variable loan (esp. since rates may rise in the future)
And with the current rate of 0.07% on one-year Treasury bonds, and 1.33% on 10-year Treasury bonds (your mortgage duration is actually about 12 years), the 1% interest-rate spread is not adequate premium for that interest-rate risk, even ignoring the tax issue.
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Re: Would you pay off a mortgage of 2.25% using a margin loan of 1.25%?

Post by grabiner »

JackoC wrote: Tue Sep 21, 2021 10:06 am The other thing is 2.25% 29 yrs is considerably lower than the average 30 yr mortgage rate now (3.05%). The other question being, it actually comes before point 2, what's the spread to the riskless curve in each case? For the margin rate it's basically 1.25% over riskless, approximating the overnight riskless rate as 0 (or call it 1.20% or something if you like). A 30 yr mortgage has around 18 yr avg life 18 yr interpolated point on the treasury curve is ~1.69%, so that mortgage rate is only 0.56% over the riskless curve, and contains a prepayment option.
You are discounting the payments in the wrong direction. The earlier payments on a mortgage have a higher present value than the later payments, and thus the average, weighted by current value, is less than half the mortgage term. For a 30-year mortgage at this low a rate, the duration is about 12 years, and the duration of a 13-year Treasury is about 12 years because some of its value comes from the coupon payments.
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Re: Would you pay off a mortgage of 2.25% using a margin loan of 1.25%?

Post by 000 »

Nope.
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Re: Would you pay off a mortgage of 2.25% using a margin loan of 1.25%?

Post by Metsfan91 »

worthit wrote: Tue Sep 21, 2021 9:32 am Hello BHs:

Trying to see if it makes sense to pay off some, most or the entire mortgage using a 1.25% margin loan.

- 29 years remaining off the mortgage @2.25% fixed rate. Outstanding mortgage - $575,000 (current house value - $950,000)
- Live in a SALT cap state.
- SWAN and do not feel the need to pay off the mortgage.
- Comfortable carrying a mortgage during retirement.

I realize that I cannot deduct the interest if I use for anything else other than purchasing equities. So it could be a wash post-tax (?), I think. But wanted to run this by this esteemed group to see if it is even worthit.

TIA.
Is the 1.25% rate fixed for a certain length? If so, I'll do it. If it is a variable rate, then no. I'll not trade a fixed rate for variable one.
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Re: Would you pay off a mortgage of 2.25% using a margin loan of 1.25%?

Post by random_walker_77 »

If that mortgage is a 30 year, then that'd be pretty amazing. A guaranteed fixed 2.25%, when inflation is running at ~2% is practically a free loan. If deductible, that's just icing on the cake (and who knows, the SALT cap could change...).

If inflation rises to be higher than 2.25%, then the bank would really appreciate it if you'd pay off that loan early. Pretty please?
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Re: Would you pay off a mortgage of 2.25% using a margin loan of 1.25%?

Post by JackoC »

grabiner wrote: Tue Sep 21, 2021 7:58 pm
JackoC wrote: Tue Sep 21, 2021 10:06 am The other thing is 2.25% 29 yrs is considerably lower than the average 30 yr mortgage rate now (3.05%). The other question being, it actually comes before point 2, what's the spread to the riskless curve in each case? For the margin rate it's basically 1.25% over riskless, approximating the overnight riskless rate as 0 (or call it 1.20% or something if you like). A 30 yr mortgage has around 18 yr avg life 18 yr interpolated point on the treasury curve is ~1.69%, so that mortgage rate is only 0.56% over the riskless curve, and contains a prepayment option.
You are discounting the payments in the wrong direction. The earlier payments on a mortgage have a higher present value than the later payments, and thus the average, weighted by current value, is less than half the mortgage term. For a 30-year mortgage at this low a rate, the duration is about 12 years, and the duration of a 13-year Treasury is about 12 years because some of its value comes from the coupon payments.
Spread to average life treasury is a standard concept in the fixed income market, not something I invented. :happy I did misestimate the average term of principal payments in a 30 yr based at this low a coupon. At 2.25% coupon the average life of a 30 yr level payment mortgage is 16.7yrs~200 months. Lay out the payment schedule in a spreadsheet The first of the 360 little 'bullet' bonds comprising the mortgage has principal $1,947 per $1mil and matures in 1 month. The last little bond has a principal $3,815 per million and matures in 360 months. The principal weighted average maturity of those 360 little bonds is 16.7 years. The value of a 1 bp change in the discount rate on all of them put together is $1,333 per $mil. Now construct a single $1mil, 200 month, monthly payment, 'bullet' bond with coupon and yield 2.25%. It's value of 1 bp $1,387 per $mil. All this standard convention does is come up with a quick and dirty approximation of the single 2.25% coupon bullet bond that corresponds to the bundle of 360 little bullets bonds of varying maturity.

The value of 1 bp of the treasury does not enter into determining the reference point for 'spread to treasuries'. This is clearly seen in considering a 10 yr bullet junk bond yielding 6%. It's value of 1 bp is $744 per million. The 10 yr note (yield 1.33%) has value of 1 bp $933/million. But the 10 yr yield is simply a reference point when market participants say, invariably, 'that junk bond trades at 467 bps over treasuries'. We do not reference it to a treasury with equal value of 1 bp. Actually hedging the junk bond with treasuries or analyzing the credit spread point by point on the zero coupon curve for each type of instrument and/or considering embedded options in the risky bond, not in the treasury, is another matter, as it would also be with the mortgage. The standard convention of average life just puts a bond/loan with amortizing schedule on the same rough basis by which we quote risky bonds' spreads to treasuries of the same maturity, not the same duration.
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Re: Would you pay off a mortgage of 2.25% using a margin loan of 1.25%?

Post by cowdogman »

What brokerage is offering a 1.25% margin loan? Fidelity's current rate for a $575K margin loan is 4.25%. https://www.fidelity.com/trading/margin ... rgin-rates

Is the 1.25% the margin above a base rate?
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Re: Would you pay off a mortgage of 2.25% using a margin loan of 1.25%?

Post by Admiral »

Nobody should be in a hurry to borrow money to pay off a 2.25% mortgage.

Have you checked the current rate of inflation?

If you want to pay it off faster, refi to a 15 year mortgage.
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Re: Would you pay off a mortgage of 2.25% using a margin loan of 1.25%?

Post by UpperNwGuy »

Why be in a hurry to pay off a mortgage? Especially as inflation shrinks the pain of the mortgage payments.
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Re: Would you pay off a mortgage of 2.25% using a margin loan of 1.25%?

Post by chazas »

No no no no no no no no no. Terrible idea.
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Re: Would you pay off a mortgage of 2.25% using a margin loan of 1.25%?

Post by shess »

drk wrote: Tue Sep 21, 2021 6:28 pm I see that you're already sold, but I wonder which state you're in. If your mortgage is non-recourse, that's even more reason not to pay it off with a callable loan.
Note that the mortgage exists in a highly-regulated industry with heavy bias towards the mortgage holder. Whereas with the margin loan, you’re a very small fish in an ocean full of predators. I’ve used margin loans for things like vehicle purchases, but my goal was always to pay it off in five or six months.
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Re: Would you pay off a mortgage of 2.25% using a margin loan of 1.25%?

Post by harikaried »

worthit wrote: Tue Sep 21, 2021 10:15 am
JackoC wrote: Tue Sep 21, 2021 10:06 amhow big are the stock holdings against which OP would borrow?
$2.5MM
It looks like borrowing the whole $575k amount is still "only" 23% of the account, so it's relatively lower risk of margin call even in the context of 50% market drop.

How much cash flow / taxable savings are you accumulating and what do you do with it? If you're investing in bonds in any account, it could make sense to pay down the mortgage for what would be "excess-of-liquidity-needs" bonds because otherwise you're borrowing money via the mortgage to buy bonds that yield less.

Similarly, instead of paying down the overall debt, you can be more cost efficient with the debt given the currently available rates. For example, instead of all $575k owed at 2.25%, you could say split it half 2.25% mortgage and half 1.25% margin loan. As long as the margin loan rates are lower, there's no need to pay that down, but if the floating rate increases, you can start to pay that down as well potentially by selling bonds. The catch is that you'll still have the original monthly mortgage payment, so that's why I asked about cash flow.
worthit wrote: Tue Sep 21, 2021 9:40 amAnother thought I had was to pay off about $100K or $200K.
You could also split the approach 3 ways. Pay down $192k with cash, pay down $192k with 1.25% margin loan, keep $192k 2.25% existing mortgage. And $192k of $2.5MM is now under 8%.
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Re: Would you pay off a mortgage of 2.25% using a margin loan of 1.25%?

Post by grabiner »

JackoC wrote: Wed Sep 22, 2021 9:28 am
grabiner wrote: Tue Sep 21, 2021 7:58 pm
JackoC wrote: Tue Sep 21, 2021 10:06 am The other thing is 2.25% 29 yrs is considerably lower than the average 30 yr mortgage rate now (3.05%). The other question being, it actually comes before point 2, what's the spread to the riskless curve in each case? For the margin rate it's basically 1.25% over riskless, approximating the overnight riskless rate as 0 (or call it 1.20% or something if you like). A 30 yr mortgage has around 18 yr avg life 18 yr interpolated point on the treasury curve is ~1.69%, so that mortgage rate is only 0.56% over the riskless curve, and contains a prepayment option.
You are discounting the payments in the wrong direction. The earlier payments on a mortgage have a higher present value than the later payments, and thus the average, weighted by current value, is less than half the mortgage term. For a 30-year mortgage at this low a rate, the duration is about 12 years, and the duration of a 13-year Treasury is about 12 years because some of its value comes from the coupon payments.
Spread to average life treasury is a standard concept in the fixed income market, not something I invented. :happy I did misestimate the average term of principal payments in a 30 yr based at this low a coupon. At 2.25% coupon the average life of a 30 yr level payment mortgage is 16.7yrs~200 months. Lay out the payment schedule in a spreadsheet The first of the 360 little 'bullet' bonds comprising the mortgage has principal $1,947 per $1mil and matures in 1 month. The last little bond has a principal $3,815 per million and matures in 360 months.
I understand this concept, but it is the wrong comparison to use when comparing mortgage payments to bonds; you need to take a weighted average of the full payment amount rather than the principal payment. This $1M mortgage has a payment of $3822 per month. Thus, if you had 360 zero-coupon bonds maturing in 1-360 months, each worth $3822 at maturity, you would have no interest-rate risk; the bonds would make the mortgage payment every month regardless of what happened to interest rates. Thus the duration of the mortgage and the duration of the bond portfolio are the same. The longer-term bonds have lower present value, which makes the duration of the bond portfolio less than half the term.
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Re: Would you pay off a mortgage of 2.25% using a margin loan of 1.25%?

Post by worthit »

Thank you all for responding.

I appreciate all your insights.

Just to respond to some of the questions:

drk, unfortunately I am in a recourse state :( .

Cowdogman, this is an unpublished, negotiated rate. You may want to call your custodian/relationship manager to request this. Thanks to a fellow BHer, I got this rate at Etrade. I could have gone even lower but decided to take it for now as I am :D with this rate.

JackoC and Grabiner, thank you for the helpful pointers on the spread. Never thought about it this way.

I am not in a hurry to pay it off. Just wanted to see if it would make mathematical sense. Appears for the risk (floating rate vs fixed) and the bps delta, it is not worthit.

Thank you all!
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Re: Would you pay off a mortgage of 2.25% using a margin loan of 1.25%?

Post by MotoTrojan »

worthit wrote: Tue Sep 21, 2021 9:40 am

Thanks for responding. Fair question.

This amount ($575K) would amount to 38% of the margin. I can bring it down to 23% if I want to as well.

Another thought I had was to pay off about $100K or $200K.
I would maybe do this if it were a 10% margin at most, but at 38% if IBKR were to raise their maintenance margin limit to 37.5% as they did in 2020, that would only allow a 55% drawdown.

Also it is a floating rate, so it is possible rates go up and you end up paying more.

2.25% is a pretty incredible mortgage rate. Enjoy it.
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Re: Would you pay off a mortgage of 2.25% using a margin loan of 1.25%?

Post by JackoC »

grabiner wrote: Wed Sep 22, 2021 7:16 pm
JackoC wrote: Wed Sep 22, 2021 9:28 am
grabiner wrote: Tue Sep 21, 2021 7:58 pm
JackoC wrote: Tue Sep 21, 2021 10:06 am The other thing is 2.25% 29 yrs is considerably lower than the average 30 yr mortgage rate now (3.05%). The other question being, it actually comes before point 2, what's the spread to the riskless curve in each case? For the margin rate it's basically 1.25% over riskless, approximating the overnight riskless rate as 0 (or call it 1.20% or something if you like). A 30 yr mortgage has around 18 yr avg life 18 yr interpolated point on the treasury curve is ~1.69%, so that mortgage rate is only 0.56% over the riskless curve, and contains a prepayment option.
You are discounting the payments in the wrong direction. The earlier payments on a mortgage have a higher present value than the later payments, and thus the average, weighted by current value, is less than half the mortgage term. For a 30-year mortgage at this low a rate, the duration is about 12 years, and the duration of a 13-year Treasury is about 12 years because some of its value comes from the coupon payments.
Spread to average life treasury is a standard concept in the fixed income market, not something I invented. :happy I did misestimate the average term of principal payments in a 30 yr based at this low a coupon. At 2.25% coupon the average life of a 30 yr level payment mortgage is 16.7yrs~200 months. Lay out the payment schedule in a spreadsheet The first of the 360 little 'bullet' bonds comprising the mortgage has principal $1,947 per $1mil and matures in 1 month. The last little bond has a principal $3,815 per million and matures in 360 months.
I understand this concept, but it is the wrong comparison to use when comparing mortgage payments to bonds; you need to take a weighted average of the full payment amount rather than the principal payment. This $1M mortgage has a payment of $3822 per month. Thus, if you had 360 zero-coupon bonds maturing in 1-360 months, each worth $3822 at maturity, you would have no interest-rate risk; the bonds would make the mortgage payment every month regardless of what happened to interest rates. Thus the duration of the mortgage and the duration of the bond portfolio are the same. The longer-term bonds have lower present value, which makes the duration of the bond portfolio less than half the term.
Sorry but you don't understand the concept given that response. Here we not looking at duration or comparing zero coupon curves, but rather spread between *yield* curves, the yields of coupon paying bonds maturing at various times. Therefore what we're breaking the mortgage into is 360 little *2.25% coupon paying* bonds. The first little bond maturing in one month has principal $1947 per $mil, the second little bond maturing in 2 months has principal $1951, the third one $1955...the last one at 360 months $3,815, adding up to $1mil. On weighted average the little coupon paying bonds mature in 16.7 years. That's what we compared to the yield of the notional *coupon paying* treasury at 16.7 years (interpolating between known points), not the treasury zero coupon curve, not the 'yield at the same duration' (whatever that would even mean). That's how we get the yield spread, per absolutely standard convention in the fixed income market.

As I said the value of 01 of the mortgage is $1333 per million, but that has no direct relationship to what treasury we compare it to get the yield spread. As again is obvious in the case of the 6% 10yr bullet junk bond where amortization doesn't figure in. It still doesn't have close to the same duration as the 10 yr note, but the *yield* spread is taken as 10 yr junk bond yield minus 10 yr treasury yield. The average life convention just does the same thing with an amortizing loan or bond, quick and dirty.
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Re: Would you pay off a mortgage of 2.25% using a margin loan of 1.25%?

Post by grabiner »

JackoC wrote: Thu Sep 23, 2021 9:12 am As I said the value of 01 of the mortgage is $1333 per million, but that has no direct relationship to what treasury we compare it to get the yield spread. As again is obvious in the case of the 6% 10yr bullet junk bond where amortization doesn't figure in. It still doesn't have close to the same duration as the 10 yr note, but the *yield* spread is taken as 10 yr junk bond yield minus 10 yr treasury yield. The average life convention just does the same thing with an amortizing loan or bond, quick and dirty.
Yes, and while that is the standard convention, it isn't mathematically precise. The spread between the yield of a 10-year zero-coupon corporate bond and a 10-year coupon Treasury bond does not measure just the credit risk premium; it also includes the term premium which is the difference between the yield of a 10-year coupon Treasury bond and a 10-year zero-coupon Treasury bond.

Another example: the 10-year break-even inflation rate should be the difference between 10-year zero-coupon nominal Treasuries and TIPS (or, since stripped TIPS don't trade, between a portfolio of nominal bonds which matches the TIPS coupons and an actual TIPS). If you sell a 10-year coupon Treasury bond to buy a 10-year TIPS, and the inflation rate is the difference between the yields, you will only break even if you reinvest the coupons at the current yield.

In most cases, the error in this difference isn't that much. A 10-year Treasury bond usually has a duration of about nine years. However, the longer the term and the higher the yields involved, the larger the duration difference.

But when a direct comparison is possible, I prefer to make the mathematically correct comparison. When deciding whether to pay off a loan, the fair comparison is to a bond portfolio which pays the same amount every month as the loan payments. If that bond portfolio costs the same amount as the loan, you break even if you could pay off the loan but instead use the same amount of money to buy the bond portfolio. This bond portfolio has a certain yield to maturity and duration. If you buy a different bond portfolio, you are no longer in an equally good position if the yields match, as you are also taking either more or less interest-rate risk.
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Re: Would you pay off a mortgage of 2.25% using a margin loan of 1.25%?

Post by JackoC »

grabiner wrote: Thu Sep 23, 2021 5:56 pm
JackoC wrote: Thu Sep 23, 2021 9:12 am As I said the value of 01 of the mortgage is $1333 per million, but that has no direct relationship to what treasury we compare it to get the yield spread. As again is obvious in the case of the 6% 10yr bullet junk bond where amortization doesn't figure in. It still doesn't have close to the same duration as the 10 yr note, but the *yield* spread is taken as 10 yr junk bond yield minus 10 yr treasury yield. The average life convention just does the same thing with an amortizing loan or bond, quick and dirty.
Yes, and while that is the standard convention, it isn't mathematically precise. The spread between the yield of a 10-year zero-coupon corporate bond and a 10-year coupon Treasury bond does not measure just the credit risk premium; it also includes the term premium which is the difference between the yield of a 10-year coupon Treasury bond and a 10-year zero-coupon Treasury bond.

Another example: the 10-year break-even inflation rate should be the difference between 10-year zero-coupon nominal Treasuries and TIPS (or, since stripped TIPS don't trade, between a portfolio of nominal bonds which matches the TIPS coupons and an actual TIPS). If you sell a 10-year coupon Treasury bond to buy a 10-year TIPS, and the inflation rate is the difference between the yields, you will only break even if you reinvest the coupons at the current yield.

In most cases, the error in this difference isn't that much. A 10-year Treasury bond usually has a duration of about nine years. However, the longer the term and the higher the yields involved, the larger the duration difference.

But when a direct comparison is possible, I prefer to make the mathematically correct comparison. When deciding whether to pay off a loan, the fair comparison is to a bond portfolio which pays the same amount every month as the loan payments. If that bond portfolio costs the same amount as the loan, you break even if you could pay off the loan but instead use the same amount of money to buy the bond portfolio. This bond portfolio has a certain yield to maturity and duration. If you buy a different bond portfolio, you are no longer in an equally good position if the yields match, as you are also taking either more or less interest-rate risk.
No yield spread is not precise. But, taking the spread on the zero coupon curve at the final point of a bullet bond, say 10 yr risky bond zero coupon rate minus 10 yr zero coupon treasury rate to represent the risky bond's spread isn't precise either, because it's ignoring the fact that shorter maturity zero coupon rates on both curves apply to the earlier cashflows in both bonds...something which taking the yield spread roughly corrects for, which is why it's the quick and dirty convention. :happy And this is all the more important in case of amortizing loan or bond, if you compared just two zero coupon rates, which one on each curve?

Also the basic question on which you originally made your incorrect 'correction' of my post is not 'whether to pay back the mortgage' per se. It's how does the pricing of a 1.25% margin loan compare to a 2.25% 30 yr (or slightly seasoned 29 yr actually in OP's case) mortgage. The question is spread to reference curve. If the spread of the mortgage to the riskless curve in the relevant maturity is narrower, the mortgage is cheaper, and vice versa, from a starting point of assumed risk neutrality between fixed and floating, also ignoring the mortgage prepayment option. So the first question is spread to the reference *yield* curve. The simple, less precise, answer is the standard market one I gave. The more precise market convention would be to price the loan (mortgage) in an interest rate swap model, using the zero coupon swap curve, and see what actual spread to SOFR (Secured Overnight Financing Rate, replacing LIBOR as the interest rate swap index) comes out to zero NPV. In the market 'spread' is either the *yield* difference at the same *maturity* (where maturity of an amortizing schedule is taken as average life) or else 'what does it swap out to' v the swap zc curve including all zero coupon effects (quite important where the last bp counts, not as much in the context here). Nobody actually does the zero coupon version relative to the treasury strip curve. And again there's no concept of yield spread between points on the different credit curves with the same duration. Again consider the bullet junk bond example, which removes the issue of amortizing schedule/average life. If you took the 'spread of the 6% 10 yr junk over treasuries' vs. the treasury with the same duration as the junk bond (between 7 and 8yr treasury point) nobody in the market would know what you were talking about, nor would it be any more precise, and that effect is also present comparing mortgage and treasury duration. The simple version of spread is 10 yr junk yield minus 10 yr treasury yield. The more precise version (albeit not exactly consistent since spread to *swap* curve) anyone calculates is the spread on the floating side of a breakeven 'asset swap' whose fixed side exactly mirrors the fixed coupons and dates of the junk bond. Assuming we don't all have swap models handy and given the relatively small difference in the big picture, quoted the first convention. There's no version based on comparing points on different credit curves with the same duration.
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Re: Would you pay off a mortgage of 2.25% using a margin loan of 1.25%?

Post by softwaregeek »

30 year mortgage is, in my opinion, the best financial instrument ever.

I view it as a one-way ratchet to lower interest rates.

I've refinanced my various properties 11 times in 12 years, taking a lender credit and a slightly higher rate in exchange for no closing costs.

If rates go up, I have a below-market mortgage and inflation hedge. If rates go down, I refinance.

I win either way.
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Re: Would you pay off a mortgage of 2.25% using a margin loan of 1.25%?

Post by harikaried »

softwaregeek wrote: Fri Sep 24, 2021 11:31 amIf rates go up, I have a below-market mortgage and inflation hedge. If rates go down, I refinance
Couldn't something similar be done with the margin loan partially paying down the mortgage? Instead of paying 2.25% interest on the whole principal, shift some, say $200k, to 1.25% margin balance. Then while the margin interest is lower than the mortgage, only make payments on the mortgage. If margin interest rates increase to be greater than the mortgage, then start making repayments.
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Re: Would you pay off a mortgage of 2.25% using a margin loan of 1.25%?

Post by softwaregeek »

harikaried wrote: Fri Sep 24, 2021 11:46 am
softwaregeek wrote: Fri Sep 24, 2021 11:31 amIf rates go up, I have a below-market mortgage and inflation hedge. If rates go down, I refinance
Couldn't something similar be done with the margin loan partially paying down the mortgage? Instead of paying 2.25% interest on the whole principal, shift some, say $200k, to 1.25% margin balance. Then while the margin interest is lower than the mortgage, only make payments on the mortgage. If margin interest rates increase to be greater than the mortgage, then start making repayments.
I don't understand how I can shift the balance back to the mortgage if rates go up. I am paying under 2% on the mortgage after tax. Would I consider taking a larger mortgage at these rates? Yeah, I would consider doing a cash out on the equity but I would end up paying a higher mortgage rate so not worth it. In addition, Mortage is over 750k so not as much tax benefit to do more. Also not much more appetite for leverage.
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Re: Would you pay off a mortgage of 2.25% using a margin loan of 1.25%?

Post by harikaried »

softwaregeek wrote: Fri Sep 24, 2021 11:56 amI don't understand how I can shift the balance back to the mortgage if rates go up.
Yes not directly comparable in that the margin balance can't be shifted back to principal, but more of the other portion of your idea of taking advantage of lower interest rates when they're available. That's also why I suggested only shifting some of the mortgage principal to margin balance.
softwaregeek wrote: Fri Sep 24, 2021 11:56 amWould I consider taking a larger mortgage at these rates? Yeah … Also not much more appetite for leverage.
Just to be clear, your comment about leverage only applies to taking a margin loan, and a larger mortgage isn't more leverage?
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Re: Would you pay off a mortgage of 2.25% using a margin loan of 1.25%?

Post by softwaregeek »

harikaried wrote: Fri Sep 24, 2021 12:02 pm
softwaregeek wrote: Fri Sep 24, 2021 11:56 amI don't understand how I can shift the balance back to the mortgage if rates go up.
Yes not directly comparable in that the margin balance can't be shifted back to principal, but more of the other portion of your idea of taking advantage of lower interest rates when they're available. That's also why I suggested only shifting some of the mortgage principal to margin balance.
softwaregeek wrote: Fri Sep 24, 2021 11:56 amWould I consider taking a larger mortgage at these rates? Yeah … Also not much more appetite for leverage.
Just to be clear, your comment about leverage only applies to taking a margin loan, and a larger mortgage isn't more leverage?
If you have both investments and a mortage, the mortgage is leverage because money is fungible. I could pay down the mortgage with my investment assets and run debt free, which would decrease my leverage. I choose to run a fairly large mortgage and not pay it down quickly so that I can keep my investment portfolio larger. Over time this has been a good decision.
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