Avoid mortgage payoff

During the past 15 months I accumulated stock worth $21,000 that is about double now at $42,000. I am considering paying off the $42,000 mortgage loan on our house to avoid $418 in payments monthly, as I am retired. But the stock's price is rising and will likely continue to appreciate. Our mortgage is at 7 1/ 2 percent. Our marginal tax bracket is 43 percent. We would, of course, be liable for a capital gains tax if we sold the stock. -- R. K.

Despite your desire to get out from under the $418 monthly payments, I strongly recommend against paying off a mortgage loan at 7 1/2 percent. Even if you elected to sell the stock and pay the capital gains, you could earn more than 7 1/2 percent by investing the cash elsewhere. For example, $42,000 invested at 14 percent in a money market fund or T-bill CD would earn $490 a month -- more than enough to pay the $418. Instead, I suggest you ride the stock up, as you say it is still appreciating, but be prepared to sell if the price stumbles. You might also consider selling 10 percent of your shares every quarter to spread your capital gains tax over more than one year. Keep the cash in a money fund until you can pay off the mortgage loan completely. Otherwise, you gain no reduction in monthly payments. With your loan at 7 1/2 percent, you can do better with your cash resources elsewhere.

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