investing

Bet the house on the stock market?

Don TaylorQuestionDear Dr. Don,
We have been advised to refinance our home and invest the money in stocks. My husband and I are retired. Does this sound like a good idea?
-- Bonnie Bettor

AnswerDear Bonnie,
Great question. I'm surprised I don't get this question more often from readers. It may sound like a good idea, but it's not. The equity you have in your home is already invested -- in real estate. To increase your leverage by borrowing against your home to invest in the stock market, especially in retirement, is a bad idea.

The argument for doing it is that mortgage rates are near historic lows. If you can fully utilize the mortgage interest deduction on your taxes, you can borrow money at a low effective rate. To be ahead of the game, all you have to do is to earn more after tax on your investments than you pay after tax on your mortgage. It sounds simple enough, but it's hard to do consistently over time.

People who would never consider buying stocks on margin -- where the brokerage firm loans them up to half the purchase price at attractive rates -- are willing to bet the house that they can earn more in the stock market than the mortgage loan rate. It's a bad trade for most of us.

Get more news, money-saving tips and expert advice by signing up for a free Bankrate newsletter.

Ask the adviser

To ask a question of Dr. Don, go to the "Ask the Experts" page and select one of these topics: "Financing a home," "Saving & Investing" or "Money." Read more Dr. Don columns for additional personal finance advice.
 

Bankrate's content, including the guidance of its advice-and-expert columns and this website, is intended only to assist you with financial decisions. The content is broad in scope and does not consider your personal financial situation. Bankrate recommends that you seek the advice of advisers who are fully aware of your individual circumstances before making any final decisions or implementing any financial strategy. Please remember that your use of this website is governed by Bankrate's Terms of Use.

News alert Create a news alert for "mortgage"

advertisement

          Connect with us
Product Rate Change Last week
1 Year CD 0.89%  0.00 0.89%
2 Year CD 1.02% --0.01 1.01%
5 Year CD 1.59% --0.00 1.59%
 
View Rates in your area Search
advertisement
CD & INVESTING NEWSLETTER

Learn the latest trends that will help grow your portfolio, plus tips on investing strategies. Delivered weekly.

CDs and Investment

How can I pay myself first?

Dear Dr. Don, You often advise readers to "pay yourself first." It sounds like a fine idea. But I'm wondering how that actually should work. I'd like to know how much or what percentage of my income should be set aside... Read more

advertisement

Blog

Dr Don Taylor

ETFs in 401(k)s worth fighting for?

Should your employer's 401(k) plan let you invest in exchange-traded funds, or ETFs?  ... Read more

Partner Center
advertisement

Connect with us