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This is a good board with a lot of smart folks on it. I'd like an opinion.

How sane is this? We have a 15 yr. mortgage in the 4.5% range, and over 60% equity in our home. We refinanced a couple of years ago for a new roof and siding. The house is in pretty good shape in terms of repairs, etc. I’ve been watching mortgage rates dip and dip and dip and thinking about refinancing again, just for the savings, however minute. (We pay more in NYS property taxes than we pay on our mortgage.)

But, now that I see quotes below 4% on 30 year mortgages, I’m considering actually taking some equity back out and getting it into the market. I don’t think it’s that hard right now to build an income oriented port that’s conservative and yields well north of that ridiculously low 30 year rate.

Consider:

NLY 14%
JPM TruP 7%
WFC TruP 7%
BAC TruP 8%
BAC pref 9%
Ford bonds 7%
PEP 3.2%
AFL 3.2%
PAYX 4.3%
ADP 2.9%
KO 2.7%
PG 3.2%
JNJ 3.6%


That 13 position port, scratched together without much thought can yield around 6%. With some thought applied, I think I could put together a reasonably “safe” port that yields north of 4%, with a combination of fixed income and equities to offset some of the interest rate risk.

Normally, I wouldn’t even consider increasing leverage. We’ve only done it once as a matter of fact, to take advantage of low rates for large repairs to the house. (We even try to avoid car loans.) But, rates are so low, it seems like one of those once in a lifetime opportunities to take advantage of. The kicker is that we could switch from a 15 year to a 30 year, pull out 100K in equity and have virtually the same mortgage payment as our current 15 year. So, we would remain well within our cash flow constraints, even excluding the income from this hypothetical port. Income off the port can roll back into the mortgage to reduce principal, if desired, or Drip back into the port, whichever makes more sense at the time.

Does that sound nuts to anyone? Or to everyone, LOL? I know that leverage is a big sin in the stock market. At least I see it as one. I never buy on margin, don’t short, can’t get myself to consider options… I'm really pretty conservative with 90% of my port. Admittedly, the other 10% ijn the playpen can get kind of overadventurous...

Anyway, a big segment of that quickly assembled port consists of dividend aristocrats; some of the most predictable companies around. Is it time to buy some of Buffett’s “equity bonds” with some historically record cheap capital drawn out of home equity? Or am I potentially stepping in it? Thanks for any thoughts…

Peter
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