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Has anyone gone to www.moneyworks4u.com?... these guys pitched a pretty norm-bucking message. They seemed to say that you should not try to build equity into your house for the following 3 reasons:

Well, there some kernels of truth in what they're saying. Looking at the reasons listed:
1. it is illiquid

Yes, this is one excellent reason why you don't want to be "house-rich, cash-poor". If you put most of your "savings" into paying down your mortgage early, you wind up in a difficult situation should a serious emergency come up. You can sell half your stocks or bonds or whatever, you can't sell half your house (although you may get a home equity loan)

2. it is at risk (the market fluctuates)

Uh, the same thing is true of the stock market. Besides, a home is a type of "forced" long-term investment (you're not about to trade homes several times a year, much less "day-trade" houses).

3. it earns no interest

Huh? Microsoft doesn't earn any interest or pay any dividends, so I guess MSFT is a bad investment, too.

They offer the alternative of taking a 2nd mortgage on your house and investing the proceeds into the stock market (it's the only investment vehicle that I know that even has a chance of the 12% annualized return this guy was quoting).

Isn't that special? OK, here goes:

The stock market has an avg return since 1925 of...well, by now it's probably between 11-12%. Yes, that is higher than the interest rate on many mortgages, especially given the tax break on mortgage interest. But as we all know, the market has considerable volatility. How'd you like to take out that mortgage and then have the market drop 40+% (as it did in '73-'74) or even 20% (as it did in late '87 and as it also did last summer)? Could you still make your mortgage payments if that happened?

There are some people who never pay off their mortgage, on the grounds that the money can be put to better use elsewhere. Most of us prefer the security of knowing that, whatever happens, the roof over our head is paid for. Pre-paying your mortgage is a form of "forced" savings (Suze Orman is a big proponent of "pay off your mortgage early"). Some people prefer putting savings elsewhere (I think Ric Edelman is a fan of the "great big long mortgage", on the grounds that it's the cheapest money you'll ever borrow). Whatever you do, you should know the relative risks beforehand, and make a decision based on your own risk tolerance. If you're about to mortgage the home to invest, you should A) be a knowledgable investor, and B) have a HIGH risk-tolerance. From the sounds of these guys, I don't think that's the group they're targeting.

They offer budget services that put their "program" into action.

Oh, I bet they do. Stay away, stay far away. If you want to bet the house on your investments (which is what one would be doing), you should be the one making the bets and you should know the chance that they'll fail.

Sorry for the long post.

-synchronicity
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