No. of Recommendations: 1
Everybody says "Don't do it".
I am looking for any logical rationale for taking out a mortgage on one's home to finance investments.
If it means a second mortgage, interest rates are commonly in the 10% range, and you aren't likely to get that out of any investments safe enough to justify risking your house.
If you currently have NO mortgage, you still would likely pay close to 8% plus closing costs to take one out. That's pretty iffy.
The mortgage on my house is at 6 5/8% and I can get bonds from such entities as FNMA paying 7 1/4%. I have been paying only the required amount on my mortgage and putting aside investment money in lieu of paying down the mortgage faster. I figure I do better to buy a bond paying 7 1/4%-7 1/2% with money that COULD be extra money on the mortgage, and use the interest on the bond to pay the interest on the principal that I didn't pay early. Now, I invest in high-flying tech stocks while there is a mortgage on my house--but my mortgage is less than 40% of the value and the payment doesn't stretch me.
But take out a home equity loan at a higher rate than I can get from investment grade bonds, or invest in the current stock market on borrowed money? No way!
If I need liquidity I can sell the bonds I bought with money that could have been used to retire my mortgage early; it would be a lot tougher to refinance the house in a pinch.
You will never be able to take out a mortgage at a rate lower than the yield on high grade bonds AT THE SAME TIME, but you might be lucky as I was and do a refi at an advantageous time, leaving you later able to make investments at a better rate than you pay on it. You are VERY unlikely to be able to do that by taking out a second!
This advice serves your broker, not you.
Consider making your own decisions, go to Fool School, and using a discount broker.
Best wishes, Chris
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