Cashing out home equity to invest in Mutual Funds

[Freein05]

I would not use my home to gamble in the market. Take the excess cash flow and invest it monthly into a fund. You automatically gain 6 to 8% on your investing because you are not paying the bank interest. You also have the advantage of dollar cost averaging. The market is at an all time high and a lot of people want to get in. But remember what goes up will come down.

It can take a long time for the market to recover. The market did not recover from the 1929 crash until about 1954. The 1987 crash only took two years for the market to recover. There was also a bear market running form 1969 to 1982 that provided very little return for investments in the markets. Than we have the dot com and market bust of 1999/2000.

Be careful when you’re using your shelter for investing.

 

[Mwsinron]

I would not use my home to gamble in the market. Take the excess cash flow and invest it monthly into a fund. You automatically gain 6 to 8% on your investing because you are not paying the bank interest. You also have the advantage of dollar cost averaging. The market is at an all time high and a lot of people want to get in. But remember what goes up will come down.

It can take a long time for the market to recover. The market did not recover from the 1929 crash until about 1954. The 1987 crash only took two years for the market to recover. There was also a bear market running form 1969 to 1982 that provided very little return for investments in the markets. Than we have the dot com and market bust of 1999/2000.

Be careful when you’re using your shelter for investing.

Then again there is all those bull runs....

 

[al_bundy]

and a few 20 year bear markets in between

 

[Mwsinron]

So obviously its an easy decision.

 

[haha]

I have never had a HELOC- do the interest rates float? What are typical terms?

Even if they are floaters, it is better than using margin because the rates will be lower usually, and you cannot get a margin call.

Ha

 

[brewer12345]

Typically prime-based floaters with a 10 year draw period (during which advances arre interest only) and a 15 year repayment period after the initial 10 years.

 

[haha]

Thnx Brewer.

ha

 

[BUM]

This is not an original idea by any means. In China, where the market is schwinging straight up, extended families are moving in together, selling all and investing in stocks.

If ever there was a reason to go-away-in-May...

 

[cute fuzzy bunny]

Who knows what the future holds, but with the market nearing an all time high and home values declining, this might not be the optimal time to do this.

DING DING DING!

 

[ADJ]

Wow! I knew when I posted this question, I would get a lot of really good advice. Thank you! The reason why I posted this question is precisely because I am reluctant to do this given the uncertainty of the market. I determined that my actual interest rate would be around 4% (considering the tax savings) on my mortgage after refinance. I figure I could definitely do better in the market but at the same time, I understand the security in not fooling with your home. I have a small mortgage balance of about 200K. I have enough cash sitting around to pay it off. For those that don't think I should refinance to pull out cash, would you suggest paying of the mortgage balance rather than investing in mutual funds?

 

[cute fuzzy bunny]

Yeah right.

Please do a thread search on 'paying off the mortgage', before you start world war 16. Again.

 

[REWahoo]

I have a small mortgage balance of about 200K. I have enough cash sitting around to pay it off. For those that don't think I should refinance to pull out cash, would you suggest paying of the mortgage balance rather than investing in mutual funds?

Out of the frying pan, into the fire...

 

[Mwsinron]

The stock market cant possibly lose money this year.....

 

[73ss454]

The stock market cant possibly lose money this year.....

Sure it can't!

 

[Mwsinron]

Sure it can't!

Jimmy Cramer says Dow 14000! Its a shoe in! :

 

[clifp]

The stock market cant possibly lose money this year.....

Wow your friends telling you that also, I just heard the same thing at a poker game.
My friend, a reformed broker. and I immediately started making a list of things to sell after hearing this bit of wisdom.

Depending on the interest rate of the mortgage it may or may not make sense to pay it off.

Because of the transaction cost involved with refinancing and the pyschological differences, I think it is much wiser to chose to invest in the market with excess cash rather than use your house as a margin loan to invest in the market.

 

[brewer12345]

Yeah right.

Please do a thread search on 'paying off the mortgage', before you start world war 16. Again.

Says the leader of the "I hate the CPI" brigade...

 

[Animorph]

I took out an adjustable rate HELOC when rates were heading down and invested $175k. That was August 2001, so it turned out to be a lousy time to do it.

I held on until I was at breakeven about 4 years later and interest rates were looking too high again. Not too great, but I'd try it again next time the market looked low enough and the rates were OK.

Generally the first $100k is deductable. The rest is deductable as an investment expense. AMT treats it all as an investment expense, so the tax treatment can be a pain in the butt to work though.

One added risk I didn't like was that my HELOC's term was only 7 years. It's supposed to be easy enough to renew, but I didn't want to be in a position of having the loan disappear while the market was down.

Dan

 

[clifp]

Yeah right.

Please do a thread search on 'paying off the mortgage', before you start world war 16. Again.

The way I understand the history, I know about WWI, and WWII. I understand WWIII is the cold and sometimes hot war, WWIV is the war on terror, or global islamic fascist. WW V is abortion. WW VI The Donald vs Rosie. WW VII is ***** (how come his name was censor last time I menitioned him) vs the rest of the ER community. WW VIII is rent vs buy in ER. WW IX is SWR, WW X is pay off mortgage WW XI is TIPs vs Wellsley.

Could you help fill in 12 thru 15.

TIA

 

[cute fuzzy bunny]

Says the leader of the "I hate the CPI" brigade...

I hardly hate the CPI.

I simply like to point out that it is a specific measure of changes to specific costs which may or may not apply to everyone, that people should understand their personal cost of living in relation to the CPI, and not just jump to the conclusion that a CPI indexed investment produces a "real" return for their instance.

I hear some people feel that personal cost of living isnt relevant, but it sort of is if the stuff and services you tend to buy increase in cost to the point where you can no longer afford them, and your investment style hasnt kept up.

Otherwise, I think that a calc that measures cost of living for an urban worker who rents and apartment and doesnt pay for health care may bear only coincidental similarity to a suburban retiree who owns their own home and pays out of pocket for health care.

You missed quite a few wars Clif... the sign of a bunch of BPD candidates who are out of work and have to find windmills to tilt against.

 

[kcowan]

I have a small mortgage balance of about 200K. I have enough cash sitting around to pay it off. For those that don't think I should refinance to pull out cash, would you suggest paying of the mortgage balance rather than investing in mutual funds?

If you have more than $200k sitting around in cash, then you cannot be trying for maximum returns on your equity. Continuing to do nothing seems to be the most likely approach.

 

[Nords]

Wow your friends telling you that also, I just heard the same thing at a poker game.
My friend, a reformed broker. and I immediately started making a list of things to sell after hearing this bit of wisdom.

It's a very profitable good thing you get to play poker with prognosticators like that. Do they know their true odds of drawing to that inside straight?

Here's another sign of the stock market's approaching apocalypse. I track 16 tickers at my Fidelity.com home page, fourteen of which we own or short and two that we're considering. Fourteen of the sixteen were up on Friday. The only two that were down... were the ones I'm shorting.

Yup, this market can't possibly go any higher.

Hey, Clif, lemme know the next time you're in a game with that market wizard (not the reformed broker!) and you need a fifth... or a sixth... or a seventh... oh, hey, waitaminnit-- which one of them is ratting you out to HPD?

 

[chinaco]

Boy... sentiment must be very positive. We are probably around a market top in Big caps in the next 12 months... When people start talking Heloc and Credit card Tickler rates for leverage.


Is it time to run?

Stay well diversified. Greed is taking over. Soon, the stampede will start when those same people fall apart when fear takes over!.

 

[Mwsinron]

I have no clue what will happen. So I guess Ill just keep my penny's in the same spot they have been However if I was a dirty market timer Id head for the hills...

 

[dgalbraith100]

I don't think we've hit the top yet, to many people saying "We've hit the top".

We need fewer people saying that, and more people saying, "this time its different".... Then we've hit the top