E*Trade margin rates with 1 million plus accounts are not too far from mortgage rates.
So you recommend maxing out margin account and buy CSCO, IBM and KO.
Why would I buy equities on margin if I do not have to? It would be more appropriate to compare Mortgage rates to CD rates since they are both guarded. Can you get Mortgage below CD rate?
Buying equities on margin has two massive downsides compared to using mortgage money to invest--
1. You can be forced to sell your equities in a downturn to pay back the margin loan. So no, I would never recommend doing that.
2. It isn't fixed rate debt. If rates go up, the margin interest could spiral up dramatically. If the market happens to be down as well, you are likely to end up in a world of hurt.
It's all about the level of risk people are comfortable with. Most people live their lives with a large mortgage and very little in the way of assets beyond the house itself, and maybe a little money in their 401(k)s. They manage to sleep at night, while I would have trouble.
My situation will be--
~ 300k outstanding on the very cheap mortgage of a 480k house
~300k in taxable equity investments
~ 1 million in IRA/457/401(k) tax-sheltered accounts.
That is a little riskier than --
paid off house worth 480k
no taxable equity investments
~ 1 million in tax-sheltered accounts
However, by the time I pay the mortgage off, I am very likely to be ahead in the first situation. Potentially dramatically ahead if inflation ever picks up again. The downside is if we get deflation and my wife and I both have extended job losses, we could end up in a bad spot.
People have different levels of comfort with debt. Mine varies with the cost of that debt, so at 3.625%, I'm going to keep a little more of it than I would at 6%. Some people would think I'm nuts for using the existing home equity to pay down the mortgage with rates this low, but a ~400k mortgage creates a pucker factor for me that a 300k mortgage doesn't.
It's funny how every 3rd thread on this site seems to turn into a "should I pay off the mortgage" thread.