TIPS to cover future mortgage obligations (at a discount?)
In 2021, I was lucky to refinance my mortgage to a 30y fixed 3.125%. I'm also staring down retirement. I pay $2200/month P&I, currently $1k/mo principal, for the mortgage. I'm also looking at long-duration TIPS trading around 3%.
Let's say I wanted to take a year of principal off the mortgage. If I were to pay/take it in 2051, I would need $26400. Assuming i take this from my 401k/IRA, minus a ~12% tax rate, I'd need to have saved $29568 by 2051. Or, I could pay roughly $12000 now, on an after tax basis, out of my current savings.
Or, hear me out: I could buy 23 of CUSIP 912810SV1 for ~$14608 in my 401k/IRA. This would pay me a real return of $29567 on 2/15/2051, covering my mortgage P&I for the year. Between now and then, every year, I get ~$37/year in todays dollars, another roughly ~$900. Every year, I pocket any increases in inflation between now and then above the mortgage payment.
Using the tips ladder app, I estimate this for bonds between 2040 and 2051:
| Funded****year | TIPS****holdings | Purchase****cost today | Real**^(*)**principal | Real**^(*)**interest | Real**^(*)totalproceeds** |
|---|---|---|---|---|---|
| 2040 | 912810QF8 × 17 | $24,664 | $26,308 | $3,064 | $29,372 |
| 2041 | 912810QP6 × 18 | $25,461 | $27,493 | $2,493 | $29,985 |
| 2042 | 912810QV3 × 19 | $20,696 | $28,125 | $2,095 | $30,220 |
| 2043 | 912810RA8 × 19 | $19,351 | $27,642 | $1,903 | $29,545 |
| 2044 | 912810RF7 × 19 | $21,358 | $27,268 | $1,629 | $28,898 |
| 2045 | 912810RL4 × 19 | $18,349 | $26,988 | $1,341 | $28,329 |
| 2046 | 912810RR1 × 20 | $19,783 | $28,233 | $1,098 | $29,331 |
| 2047 | 912810RW0 × 21 | $19,480 | $29,098 | $830 | $29,928 |
| 2048 | 912810SB5 × 22 | $20,182 | $29,841 | $553 | $30,394 |
| 2049 | 912810SG4 × 22 | $19,476 | $29,243 | $258 | $29,501 |
| 2050 | 912810SM1 × 23 | $15,850 | $29,923 | $74 | $29,997 |
| 2051 | 912810SV1 × 23 | $14,608 | $29,549 | $18 | $29,567 |
All else being equal, paying $12000 today out of money I may need for expenses today, or $14608 of my net worth in my pre-tax 401k/IRA, MINUS interest coupon payments of $900 total and MINUS any inflation increases between now and then which are in my favor, (PLUS any hidden risk that interest rates move/dollar deflate); the investment in the ~25yr remaining TIP suddenly becomes very tempting. Earlier maturing bonds are seemingly less good of a deal, with by 2041 or so no deal at all, but also seem to offer a way to pay "less" for a future obligation in a "guaranteed" way than paying today, plus provide some real income on the side every year beyond "dead" money sitting in home equity. I'm in some ways trading a taxable expense today for a, maybe lower, tax free one. (glitch in the matrix?)
I'm aware that taxes, maintenance, insurance, etc are not covered here, but those are real expenses I have to budget for anyway. I'm also aware that putting the same amount "at risk" in the market would likely pay off better by 2051. I'd have to "sell" something to buy this, but swapping a riskier asset like a corp bond ETF in my current bond sleeve, or even a dog equity, seems a wise choice. It's also something I don't have to go in all at once: I could buy half now, say 10 bonds, and if interest rates go up further, buy the remainder at an even greater discount later.
Am I crazy, or is this a "really good deal"? Any blind spots I've missed?
Deal, or no deal?