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Author: Rayvt Big gold star, 5000 posts Top Favorite Fools Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 76075  
Subject: Re: Refinance Home to Invest Date: 10/31/2011 1:35 AM
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Lots of good comments here. But plenty of bad ones, too.

Here's mine:

* Your house is not an investment. You don't "earn" 4.75% (or whatever your interest rate is) by paying extra on the mortgage. Such claims are sheer innumeracy. Avoiding an expense is not the same thing as earning a profit.

* A paid-off house is not cost-free. You have an imputed (foregone) cost of whatever that amount of money would be earning if it was invested. In my case, I have a good chunk of money invested in a preferred stock portfolio yielding about 7.5%. $100,000 in this earns $7500 a year. Putting that $100K on the mortgage would cost $7500 a year in forgone income.

* If you are a novice newbie investor, you will probably make a LOT of mistakes and lose a good chunk of money while gaining experience.

* If you are going to pull money out of your house to invest, you should get the cheapest money you can for the longest time you can. This means a 30 yr mortgage, not a 15 year. And fixed, not adjustable. And 80% LTV. If you are going to do it, do it right, don't take half-measures.

* Oh yes, don't pay points to get a lower rate. If you don't understand why, then your financial knowledge is lacking.

* You MUST protect yourself financially. Unless you are an experienced investor, you should take something like half the money you pull out, or something like 4-5 years worth of payments, and put that into something reasonably safe & liquid. Perhaps bond funds like BND, IEF, SHY, etc.
Invest with the remaining money.

* As long as you protect yourself, this isn't a bad idea, IMHO. This is pretty much the way that I got started on my investing career.
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