US Homeowners Are Effectively Broke

Assuming it would put a major dent in your portfolio and assuming you have a low, fixed interest rate (but not as low as available now, yet unable to refinance because of job situation), would you sell at a loss some stocks to pay off a mortgage?

Setting aside career risk, you're highly likely to be better off leaving the money in the stock market if your choice is between doing that for the next 10 years or paying off your mortgage 10 years early, because the return on stocks from its current level is almost certain to at least match that of NOMINAL GDP growth over that period, and very likely to better it. Even after this recent rally since the beginning of March, and next of the shrinkage in nominal GDP that has defined our recession, US stocks are collectively priced at about 75% of nominal GDP. Assuming conservatively that avg. real GDP growth over the next 10 yrs is 2% (20th century avg was 50% higher at 3%) and that inflation is 3% (I think that's a low estimate given our tendency to monetize our mushrooming debt), AND that stocks are priced at 75% of GDP ten yrs hence (which is about the average for the long term), then the return on the avg stock from price gains will be 5%. Add a conservative avg. dividend yield of 2% pre-tax, and say you've got investment mgmt expenses of 1%, then you can expect 6% yield on your stocks. Assuming you sell after 10 years, then after you've paid dividend taxes over the years and capital gains taxes when you sell, your avg after-tax return will be 5.75%.

Mortgage interest is generally fully tax deductible at both the federal and state level. Assuming conservately again that you're in the lowest federal tax bracket (28%), and that you live in a state with no income taxes, then as long as your mortgage rate is no more than 7.9%, your after-tax cost of that money is less than the returns you'll likely get on it in the stock market.