Most of this I put back into the market as a lump sum.
Here are all the details. I will provide updates periodically to track total return.
Investing the Mortgage
Whether to have a mortgage or not is a topic of much debate amongst retirees of both the early and traditional type. Personally I think mortgages are great – low cost, low interest, tax efficient, etc…
Our mortgage is $250,000 30-year fixed 2.75% interest. Payments are $1,020.60 monthly and I pay property taxes and insurance directly (no escrow.)
Some of the proceeds I’m using for our normal everyday spending, but most I invested according to our asset allocation.
Closing Cost Details
Mortgage fees were reasonable – thanks to $3,000 in “Lender Credits” they actually paid me to get the mortgage in the first place.
(The company I worked with sold the mortgage to Uncle Freddie within minutes of closing, who then outsourced the mortgage payment handling to one of the larger banks. Score one for corporate welfare, I guess.)
I had to pay $700 up front for an appraisal as Freddie and Fannie had no info on this house (built 30+ years ago by the people we bought it from.) I heard this from multiple lenders so presumably it is accurate but still dumb – the appraiser spent 15 minutes in the house and concluded it was worth exactly what we paid for it. I know, I was shocked too.
After closing our homeowner’s insurance company credited $267.51 to my credit card. Apparently the escrow company sent them a check.
A few weeks later the escrow company sent me a check for $75 with the memo “Recording Overage Refund.”
Ultimately I ended up with a check for $249,974.83 via next day delivery and credits/checks/prepaid interest in the amount of $75.73, for a profit at closing of $50.56.
Of the total mortgage proceeds I invested $150,147, about 60% of the mortgage proceeds.
- 450 shares of VTI @ 222.61 ($100,174.50)
- 475 shares of VXUS @ 63.10 ($29,972.50)
- I-bonds @ $20,000 ($20,000)
This is roughly a 75/25 US/International split on the equity allocation and a token contribution to bonds. Normally I wouldn’t have bothered with the bonds but they are paying 7.12% for the next 6 months and I already had a Treasury Direct account so it only took a few minutes of my time.
As of market close on Monday, January 10th, 2022, the total return on investment is +3.7%
Dividends, Q32021 – $325.89
Dividends, Q42021 – $386.64
Dividends, Q32021 – $169.34
Dividends, Q42021 – $447.07
Interest – $0 (no interest reported for 1st 3 months of ownership)
(Income not reinvested – used for current spending.)
Mortgage closing costs: -$30.37 (scaled 60% of total to account for investing 60% of mortgage)
Mortgage interest, total: $1,290.58
Pre-paid at closing: $260.19
November 2021: $344.09
December 2021: $343.46
January 2022: $342.85
Taxes, Estimated (on dividends): $364.35
(effective tax rate: ~27.4%)
Per Vanguard, an estimated 97.57% of VTI dividends are qualified. For VXUS it is 73.76%.
Our 2021 tax rate for qualified dividends will be ~25.8% (15% dividends, 3.8% NIIT, and ~7% California (scaled for part year residents.))
The tax rate for non-qualified dividends will be higher, ~37.8% (12% ordinary, 15% dividends pushed out of 0% bracket, 3.8% NIIT, and ~7% CA.)
We will get no tax benefit for the deduction of mortgage interest or property taxes.
Total expenses: $1,624.57
Recent prices from market close on January 10th, 2022.
Purchase price: $222.61
Recent price: $235.70
Purchase price: $63.10
Recent price: $63.05
Total gain(%): +4.5%
Total gain($): $5,866.75
Original Basis: $150,147.00
Market Value: $156,013.75
Net profit/loss: -$295.63
Total return(%): 3.7%
Total return($): $5,571.12
We got a mortgage on our house and invested some of the proceeds.
After a few months total return is positive at ~3.7%
So far so good.