We bought a house, paid in full with cash. Then I got a small mortgage to invest for fun and profit.

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.

Investments

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.

Total Return

As of market close on Monday, January 10th, 2022, the total return on investment is +3.7%

Income

VTI
Dividends, Q32021 – $325.89
Dividends, Q42021 – $386.64

VXUS
Dividends, Q32021 – $169.34
Dividends, Q42021 – $447.07

I-bonds
Interest – $0 (no interest reported for 1st 3 months of ownership)

Total: $1,328.94
(Income not reinvested – used for current spending.)

Expenses

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

Unrealized Gains

Recent prices from market close on January 10th, 2022.

VTI
Purchase price: $222.61
Recent price: $235.70
Gain/Loss(%): +5.9%
Gain/Loss($): $5,890.50

VXUS
Purchase price: $63.10
Recent price: $63.05
Gain/Loss(%): -0.1%
Gain/Loss($): -$23.75

I-bonds
Gain/Loss: 0%

Total gain(%): +4.5%
Total gain($): $5,866.75

Total Return

Original Basis: $150,147.00
Market Value: $156,013.75
Gain/Loss: $5,866.75

Income: $1,328.94
Expenses: $1,624.57
Net profit/loss: -$295.63

Total return(%): 3.7%
Total return($): $5,571.12

Summary

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.

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