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Old 01-12-2009, 01:24 PM   #21
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Originally Posted by FIRE'd@51 View Post
I wouldn't take out a mortgage to finance stock investments, but I would look at utilizing buying power in a margin account. At my broker, the interest rate on a debit balance over 25K is 2.75%. Many good quality stocks have dividend yields that cover this borrowing cost.
Just curious, what broker is that?

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Old 01-12-2009, 02:16 PM   #22
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Originally Posted by Gardnr View Post
Just curious, what broker is that?
Check your PM's

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Old 01-12-2009, 02:55 PM   #23
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Welcome to the club, Grumpy.

We did that in 2004 and we're refinancing to drop the interest rate down to 4.5%. We also did that to a smaller extent with our rental property (the 5.5% mortgage interest washed out the Schedule E passive income) in 2001 and bought Berkshire Hathaway "B" shares on sale in the $2200s.

The first issue-- you've already won the game in the third quarter and now you're just running up the score. You may not want the excitement to disturb your sleep at night.

The second issue-- if history & statistics are any indication, your stock picks will win over a 30-year mortgage. (Especially in a cheap equity index fund.) You might win over 20 years. You have about a 50% chance of winning over 15 years. Good luck over the shorter term. Are you or your spouse going to be annoyed if one or the other of you isn't around for the entire 30 years?

Third issue-- do you have any bonds or CDs that are paying less than the mortgage interest rate is costing you? If so then you're losing a little on each transaction and trying to make it up on volume.

Fourth, the nation's median length of residence is about seven years. Do you have any expectation of changing residences by then, let alone during the next 20 years?

Finally, the reason I mentioned Berkshire Hathaway is because last October I thought we were going to get an opportunity to buy more shares at that price. Not much fun to look at that seven-year chart.

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Old 01-12-2009, 03:25 PM   #24
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Congratulations! It seems like you have found a new way to start a 'should I pay off the mortgage thread'
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Old 01-13-2009, 03:53 PM   #25
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Would the dividend cover the payment?

We are in our 30s so it is not a big deal, but so far the dividend from VTI and VEU is more then the monthly payment. Only problem is that Bank of America only allow 50% Heloc on the house in Texas, which is $115K at 2.79%. Now if I could get that other 50% of the pay off house, it would go into the market also.
Thank goodness I could not, because it seem I don't know the pain of the DOW going to zero yet.
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Old 01-13-2009, 09:05 PM   #26
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Originally Posted by grumpy View Post
I would like to draw on the expertise of those on this board to identify the factors that I should consider in deciding if this scenario makes sense:

We bought our new home for cash four years ago. Although prices have fallen, the house is still worth close to what we paid for it.

We are both retired with COLA'd pensions that cover all basic living costs but we have little extra income to invest.

With the overall market at very attractive levels and 30 year fixed mortgage rates around 5%, I am toying with the idea of mortgaging the house to the hilt and using the cash to invest for the long term.

What are the land mines lurking out there?
What kind of loan would you get? I'm finding that home equity loans are up in the 6.5% rate range, so are people with paid off houses not qualified for the great 4.5% rate I'm hearing about? Seems doesn't make much sense to me because you'd be at a lower risk with only 30% to 50% of house in a loan rather than up to 80% in a loan.
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Old 01-14-2009, 09:00 AM   #27
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Terrible, terrible idea. Warren Buffet says it, "never try to make money from borrowed money".

Better idea if you want more disposable income - sell your house, take your one time tax exemption for capital gains on the expensive house, pay for a cheaper house, and still have money to invest the profit from the former house.

Best of all worlds.
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Old 01-14-2009, 11:02 AM   #28
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Originally Posted by Hobo View Post
Terrible, terrible idea. Warren Buffet says it, "never try to make money from borrowed money".

I assume this would include making money on rental properties by borrowing money (mortgage) to buy them?
"I wasn't born blue blood. I was born blue-collar." John Wort Hannam
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Old 01-14-2009, 12:48 PM   #29
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I almost exactly one year ago I took advantage of PenFed's 4.99% no fee 10 year HEL to take out $100K to invest in some stock market "bargains". The original plan was to take advantage of some long term 5-10 years CD near 6% and use the rest to invest in MLP, closed end funds, with distribution rates in the 8-10%. But the time I actually got the money the high CD rates had dropped, so I end up putting the money into the market instead.

I guess the good news is one year latter the income from the 100,000 is about $7,000/year (down from 8K at one point) which makes paying the $1,000 mortgage a lot easier. Of course the bad news the $100K is now worth approximately $60k.

At the end of the 10 years, I still think there is a chance I may end up being of ahead of the game. I think it is very likely Grumpy will be ahead. The reasonable question is why take the chance? The answer for me is because I was/am greedy. But as Nord's has said you won the game why run up the score?
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Old 01-14-2009, 12:56 PM   #30
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This current market should give you pause, at least I hope it does.......
Consult with your own advisor or representative. My thoughts should not be construed as investment advice. Past performance is no guarantee of future results (love that one).......:)

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Old 01-14-2009, 01:05 PM   #31
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Originally Posted by FinanceDude View Post
This current market should give you pause, at least I hope it does.......
I agree. I don't like the idea of borrowing to invest, especially borrowing secure by your home. That goes double for someone who, by their own description, already has living expenses met by two COLA'd pensions. I just don't see the need to take the excessive risk.

I would agree that this seems like a good time to load up on stocks and let it ride for years, but as the old saying goes, the market can remain irrational longer than you can stay solvent.

Different strokes and all, but to me the value of your current income stream is that you don't have to take much market risk, if at all. And we don't know if this juncture in time will be more like late 1974 or like late 1930. If it's the latter, ouch.
"Hey, for every ten dollars, that's another hour that I have to be in the work place. That's an hour of my life. And my life is a very finite thing. I have only 'x' number of hours left before I'm dead. So how do I want to use these hours of my life? Do I want to use them just spending it on more crap and more stuff, or do I want to start getting a handle on it and using my life more intelligently?" -- Joe Dominguez (1938 - 1997)
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Old 01-14-2009, 02:41 PM   #32
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Grumpy: I see by your Profile you could draw SS this year, I believe. Why not just get that and put it in the market every month (DCA). When you get older you could always do a "mulligan" to increase the SS (with a payback) and then even have more SS to put in the market at that time.

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