Advice on Selling off investments to lower monthly mortgage

Selling investments to lower your mortgage can be a viable strategy in certain situations, but it depends on your overall financial goals, the specifics of your mortgage terms, and how well-prepared you are for other financial priorities like retirement, emergencies, and unexpected expenses. Here’s a tailored breakdown of the pros and cons and how to evaluate this decision:

1. Considerations Before Selling Investments

Liquidity Needs:

Do you have an emergency fund of at least 3–6 months of expenses (separate from investments)?
- If not, ensure this is in place before using savings for the mortgage.

Impact on Retirement:

With $330k in retirement and brokerage accounts at your income level, you’re in a decent position for your age, but selling $50k could slow your retirement growth.
- Consider whether you can still meet retirement savings targets with reduced investments.
- If the $50k comes from a retirement account, factor in penalties and taxes, which could reduce the actual amount you can apply to your mortgage.

Mortgage Terms:

What is your interest rate?
- If your mortgage rate is low (e.g., <5%), the money might be better left invested, as market returns historically average ~7% annually over the long term.
- If your rate is higher (e.g., >6%), paying down the mortgage might be more attractive.

Investment Growth vs. Savings:

Investments in your brokerage account likely have growth potential. Selling these reduces your long-term investment gains in exchange for short-term mortgage relief.
Compare the effective “return” of reducing mortgage interest to the potential return on your investments.

2. Benefits of Paying Down the Mortgage

Lower Monthly Payment: Applying $50k toward the principal reduces the loan amount, directly lowering your monthly payment. For example, applying $50k could lower your payment by ~$300–$350/month, depending on your interest rate and loan term.
Interest Savings: Paying down the principal reduces the total interest paid over the life of the loan.
Psychological Relief: Lower fixed expenses can provide peace of mind, particularly if your income fluctuates or you prefer lower monthly obligations.

3. Alternatives to Selling Investments

If the goal is to reduce your monthly payment, consider these options before tapping your investments:

Refinance:

If rates are favorable, refinancing could lower your payment without depleting investments.

Biweekly Payments:

Switching to biweekly payments effectively adds an extra payment per year, reducing your principal faster without requiring a lump sum.

Income Boost:

If your income of $120k comfortably covers other expenses, consider directing extra income (bonuses, raises, or side income) toward the mortgage without selling investments.

4. Smart Way to Sell Investments if Necessary

If you’re set on using $50k from investments, consider the following:

Avoid Retirement Accounts: Selling from retirement accounts could trigger taxes and penalties if you’re under 59½.
Tax-Efficient Selling: Focus on selling from taxable brokerage accounts to avoid early withdrawal penalties.
- Review the cost basis of your investments to minimize capital gains taxes.
Diversify Remaining Investments: Ensure your remaining portfolio remains balanced and diversified.

5. Personalized Recommendation

Run the Numbers:
- If your mortgage rate is above 6%, selling investments could make sense if the effective savings exceed your expected investment returns.
- If your rate is below 5%, it’s likely better to leave investments untouched and focus on long-term growth.
Consider a Partial Paydown:
- Instead of $50k, try $25k. This would still reduce your payment without a significant hit to your investment portfolio.
Prioritize Retirement Savings:
- Ensure you’re still maxing out tax-advantaged accounts like 401(k) and IRAs. Selling investments for a mortgage while under-saving for retirement isn’t ideal.

Example Calculation (Assuming 6% Mortgage Interest):

Original mortgage: $2600/month
After a $50k lump sum, the monthly payment could drop to ~$2250/month. This saves $350/month or $4,200/year.
Over a 30-year period, $50k invested with a 7% return could grow to $380k. Compare this to the savings in mortgage interest ($126k on $50k at 6%).

Final Thought: The decision depends on your mortgage rate, financial priorities, and comfort with liquidity. Paying down the mortgage can provide peace of mind and lower expenses, but keeping investments intact often leads to greater long-term wealth. If in doubt, consult a financial planner to model the trade-offs and choose the path that aligns best with your goals.