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Mortgage Payoff – When & Why? David E. Hultstrom, MBA, CFP.

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Presentation on theme: "Mortgage Payoff – When & Why? David E. Hultstrom, MBA, CFP."— Presentation transcript:

1 Mortgage Payoff – When & Why? David E. Hultstrom, MBA, CFP

2 Outline 1.Clarifying the Question 2.The Math Part 3.The Human Part 4.Observations & Examples

3 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

4 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!

5 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

6 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

7 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

8 David Hultstrom, MBA, CFP Financial Architects, LLC Contact Information


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