Refi payed off house to invest?

[BunsGettingFirm]

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.

 

[Hobo]

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.

 

[youbet]

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?

 

[clifp]

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?

 

[FinanceDude]

This current market should give you pause, at least I hope it does.......

 

[ziggy29]

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.

 

[OAG]

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.