# Should I sell stock in TFSA to pay off Mortgage



## snowbird (Jun 14, 2012)

Hi everyone,

I realize this is an on-going debate but looking for some comments on my particular scenario:

Outstanding mortgage amount: $166,000
End Term: 2020
Rate: 2.35%

I have followed a strict plan to payoff the mortgage by December 2019 by prepaying $45,000 each year. However, my cashflow this year is short by ~$18,000 as a result of unforeseen spending and reduced bonus from my work this year. I am thinking of selling 1 stock worth ~$18,000 from my TFSA to meet the annual mortgage prepayment in December, and hopefully replenish the TFSA asap by saving harder next year. The stock in question has appreciated ~30%.

If i fail to meet the $45,000 this year and only put in the $27,000 cash i have on hand, i will be adding ~ 1 year to the mortgage. On the other hand, i have done well with the stock and it was to be a long term hold that could still go higher.

Should i sell the stock or not?

Thanks for your input.


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## Eclectic12 (Oct 20, 2010)

When making similar decisions in my TFSA, I looked for stocks that were high where I didn't think the business prospects would hold up. If they also paid less income (or dividends) than the interest rate, then I sold, withdrew from the TFSA and paid down the mortgage.


Cheers


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## Just a Guy (Mar 27, 2012)

I personally don't understand debt adversion. It's a tool, do you fear a hammer? It can also kill you. 

If the stock is appreciating, tax free, more than 2.35%, why would you even consider selling it to pay down debt?

Unforeseen stuff happens all the time, why get rid of a nest egg for your future to pay off a mortgage early?


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## Mookie (Feb 29, 2012)

What is your ultimate financial goal? To pay off the mortgage by December 2019, or to maximize your overall wealth?

If it's the latter, and you expect the stock in question to exceed 2.35% return going forward, then you know what to do.


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## like_to_retire (Oct 9, 2016)

Just a Guy said:


> If the stock is appreciating, tax free, more than 2.35%, why would you even consider selling it to pay down debt?


The mortgage investment @2.35% is a tax free, risk free, guaranteed investment.

A stock that has appreciated 30% is not. The fact that the stock is anticipated to appreciate more than 2.35% isn't an apples to apples comparison. You have to place a value on the risk.

The TFSA room will be there once the mortgage is paid off.

Not even a question in my mind to pay the mortgage off.

ltr


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## Just a Guy (Mar 27, 2012)

Value of the house is also not guaranteed, a correction could occur wiping out 40-60% of its value. There's not a question in your mind because you don't consider that something like this could happen since housing has been on a tear for more than 20 years...what happens to the stock market when that happens? You wouldn't be shocked if that happened, not happy but not shocked, yet you think real estate is safe...

As someone with probably a lot more real estate exposure than most, let me assure you real estate is certainly not safe.


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## Jimmy (May 19, 2017)

Just a Guy said:


> Value of the house is also not guaranteed, a correction could occur wiping out 40-60% of its value. There's not a question in your mind because you don't consider that something like this could happen since housing has been on a tear for more than 20 years...what happens to the stock market when that happens? You wouldn't be shocked if that happened, not happy but not shocked, yet you think real estate is safe...
> 
> As someone with probably a lot more real estate exposure than most, let me assure you real estate is certainly not safe.


The topic isn't the house value - it is the mortgage. Paying it down is a risk free investment. The mortgage loan doesn't change in value w the market. Holding a stock carries some risk on the other hand.


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## AltaRed (Jun 8, 2009)

A bear market/recession would take care of that argument. 

I would look at it from the perspective of whether the OP believes the stock, as currently priced, really has room to continue to appreciate or is more likely in 'overbought' or 'full value' territory. Would you buy that stock today at its current price? If not, you have your answer. Sell the stock and buy down the mortgage. If you would buy at the current price, let the mortgage run another year. 2.35% after tax (3+% BT?) is not an outsized burden.


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## Just a Guy (Mar 27, 2012)

Jimmy said:


> The topic isn't the house value - it is the mortgage. Paying it down is a risk free investment. The mortgage loan doesn't change in value w the market. Holding a stock carries some risk on the other hand.


Umm, if the house price drops below the mortgaged amount, making it underwater, there certainly is risk. You can lose not only the money you "invested", but also the place you live as well as your credit rating for 7 years. 

Stock goes down, you only lose the money you invested.


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## Nerd Investor (Nov 3, 2015)

Looking at whether that specific stock can continue to appreciate at a greater rate than 2.35% isn't quite right either. As he can sell the stock any time (and do whatever he wants with the cash), the question is can he invest in _anything_ within the TFSA likely to earn more than 2.35%.


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## tygrus (Mar 13, 2012)

Sell the stock, but buy something else in its place. Dont worry about that tiny little mortgage. House is not an investment so you are not gaining anything by paying it down earlier except piece of mind. Time is your biggest enemy not debt.


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## Mortgage u/w (Feb 6, 2014)

I think you already know the answer - just want some reassurance. It has nothing to do with risk vs profit vs etc. 

I don't like debt either and would probably sell a stock if I knew it would wipe out my mortgage within the next couple of years. Cash flow increases providing a multitude of options.


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## STech (Jun 7, 2016)

snowbird said:


> If i fail to meet the $45,000 this year and only put in the $27,000 cash i have on hand, i will be adding ~ 1 year to the mortgage. On the other hand, i have done well with the stock and it was to be a long term hold that could still go higher.



This part doesn't make sense to me at all. Are you hoping to repurchae the stock cheaper? What if it went up another 30% and it was supposed to be a long term hold for you?


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## AltaRed (Jun 8, 2009)

Mortgage u/w said:


> I don't like debt either and would probably sell a stock if I knew it would wipe out my mortgage within the next couple of years. Cash flow increases providing a multitude of options.


I'd always choose paying off debt and always have/did but then when I was paying off mortgage debt, interest rates were a lot higher. Re-directing the cash flow that was otherwise going to mortgage payments was the most liberating and energizing feeling I ever had. Still, today's society is addicted to debt and does not seem bothered by it. However, continued ratcheting up of BoC rates will cause some pain.


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## snowbird (Jun 14, 2012)

Thanks for the responses. My preference today would be to hold on to the stock (AGU.TO) but the reason i am even considering selling to meet the mortgage prepayment is that my job situation is insecure and i am worried about being laid off with a mortgage to pay for another 2-3 years. If i knew my job was 'safe', i would probably keep the mortgage for the 1 extra year. 

I am a single female with no family for thousands of miles so my one worry is not having a roof over my head:02.47-tranquillity: 

On a rational level, i know this to be a small risk (and i have some cash savings) but this fear has a way of making me question every decision, hence i wanted to hear some objective views before making an emotional decision.

Thank you all very much. I will wait and see what happens at work by December (if i last till then)


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## gardner (Feb 13, 2014)

My approach with a potential low/no income period would be to conserve cash (or liquid holdings like AGU) rather than pay off the mortgage. Paying a large lump sum will not remove the ongoing obligation to keep up with regular payments, but will remove a chunk of assets you could use to keep those payments going. In the event of reduced cash flow, you want to hang onto your liquid assets, not tie it up.

I would have the opposite approach if I felt my income was safe: use available cash to pay down debt first.


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## Jimmy (May 19, 2017)

Just a Guy said:


> Umm, if the house price drops below the mortgaged amount, making it underwater, there certainly is risk. You can lose not only the money you "invested", but also the place you live as well as your credit rating for 7 years.
> 
> Stock goes down, you only lose the money you invested.


Ummm, you are still obfuscating the issue. This isn't an issue of the house as an investment, he already bought the house. Issue is mortgage payment return vs a stock's return

He is still obligated to repay the mortgage regardless of what happens to the house value. The mortgage again doesn't change in value and paying it down represents a 2.35% return which is fixed. Stock again has no guaranteed return . Hope that helps


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## AltaRed (Jun 8, 2009)

gardner said:


> My approach with a potential low/no income period would be to conserve cash (or liquid holdings like AGU) rather than pay off the mortgage. Paying a large lump sum will not remove the ongoing obligation to keep up with regular payments, but will remove a chunk of assets you could use to keep those payments going. In the event of reduced cash flow, you want to hang onto your liquid assets, not tie it up.
> 
> I would have the opposite approach if I felt my income was safe: use available cash to pay down debt first.


I tend to agree. With the latest information regarding risk of job loss, it may be better to 'conserve' the cash (cash equivalent) to fund ongoing mortgage commitments if the job goes away. AGU, in this case, is a pseudo-emergency fund but Snowbird needs to be aware the pending Agrium-Potash merger is supposed to happen very shortly. Does that mean stability or volatility going forward? They just received Canadian Competition Bureau approval but it's not a given they will yet close this deal.

If I was in this position, AGU would not be the stock I'd keep as my emergency fund.


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## Oldroe (Sep 18, 2009)

I think I would take the 30% and invest it in laddered GIC. This would be my last mortgage payment if things workout at your job.

If they don't do what you need to do.


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## gardner (Feb 13, 2014)

AltaRed said:


> AGU would not be the stock I'd keep as my emergency fund.


I would agree here. Getting (maybe part way) out of AGU and into a HISA would be a reasonable move, if you think job stability is likely to be a real issue. AGU is looking reasonably strong compared to much of the past 6 months. It is not a crazy time to sell.


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## AltaRed (Jun 8, 2009)

gardner said:


> I would agree here. Getting (maybe part way) out of AGU and into a HISA would be a reasonable move, if you think job stability is likely to be a real issue. AGU is looking reasonably strong compared to much of the past 6 months. It is not a crazy time to sell.


I'd be out of AGU completely. No one knows whether the US regulatory regime will thwart the merger of US operations, how well the merger will go, etc, etc. Stock value could easily drop as much as go up. IMO, it is rolling the dice. Owning TD would be a lot safer.


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## Ag Driver (Dec 13, 2012)

Deleted


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## AltaRed (Jun 8, 2009)

Ag Driver said:


> Interesting topic. Regardless of job stability; At what point would it be a no brain-er to sell out and pay off the mortgage? A mortgage rate of 4%? ...8%? ...18%?


I'd liquidate (preferentially pay down) well below 6%. Mortgage payments are in AT funds. Where can you guarantee 8-9% or so return in capital markets to be equivalent to a 100% AT rate of 6%? I'd pick a maximum of 4% as the tipping point and more likely 3-3.5%.


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## Soon Forget (Mar 25, 2014)

Ag Driver said:


> I think once rates are north of 6%, I will be a bit more aggressive and consider liquidating in order to clear out the mortgage.


What if a steady increase in interest rates coincides with a decline in the markets? Would you liquidate part of a portfolio that's down 20% in order to avoid refinancing into a 6% mortgage?


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## Soon Forget (Mar 25, 2014)

AltaRed said:


> Mortgage payments are in AT funds. Where can you guarantee 8-9% or so return in capital markets to be equivalent to a 100% AT rate of 6%?


To be fair though, the question was comparing tax-free investing (TFSA) to that after-tax mortgage. Once the mortgage is paid off you don't get to stop paying tax on the income you were using to pay down the mortgage.


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## STech (Jun 7, 2016)

Soon Forget said:


> What if a steady increase in interest rates coincides with a decline in the markets? Would you liquidate part of a portfolio that's down 20% in order to avoid refinancing into a 6% mortgage?



Exactly. And now you've got all your eggs in one basket, and could face the real possibility of a housing bubble as well.

A smart investment is buying and holding, and not buying and selling. I know I'm over simplifying it, and lots of variables need to be considered, but I think it's best to not let one asset class decide the fate of the other.


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## My Own Advisor (Sep 24, 2012)

_Assuming_ equities appreciate > debt longer-term, then no. 

At the end of the day though, many financial decisions are more about assumptions and financial risks and emotions more than straight-up math. Therefore consider the best return, for the least risk, and the one you are most comfortable with. Not an easy equation


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## TomB19 (Sep 24, 2015)

Defend your tfsa. Just do your best with the mortgage.

You sound like a rock star of personal finance. Good for you.

I'd save less and pay more on the mortgage, if you feel it's important (like I do), but I wouldn't cash out the savings.


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## snowbird (Jun 14, 2012)

^^ this is the position i have settled on - defend my savings and just challenge myself on the mortgage (i told myself that i am doing my best and 1 extra year is not a big deal in my financial life)

Thank for you all for the responses, it has been a good debate. I think someone asked upthread whether my overall financial goal is to maximize wealth or pay off mortgage - this stuck with me. Very sage.

This forum has helped me more than anything else in developing personal financial intelligence. Thank you!!


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