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Gambling your home’s equity

By Judy Martel ·
Wednesday, April 10, 2013
Posted: 11 am ET

Rising home prices are providing many homeowners with a benefit they haven't seen in years: increased equity in their homes. That's leading some to seek a higher return on their money by taking the equity and investing it in stocks or other higher-paying investments, according to the Wall Street Journal.

Back to the old days

Cash-out refinancing was popular before the recession. This time around, instead of using the money for renovations, some homeowners are taking advantage of near-historically low mortgage rates and a booming stock market to gamble on a bigger bang for their buck. The problem is, if the bet goes the wrong way, they've put up the home as collateral.

Home repairs are one thing, but gambling your house on a higher return is foolish, says Ben Tobias, president of Tobias Financial Advisors in Plantation, Fla.

"My opinion is the same as it's always been," he says. "It depends a little on what stage of life you're in, but if you're talking about retirees, then absolutely not. The stock market may do great, but then again, it may not and then you have a liability and you may have to sell the house."

Like Monopoly, kinda

Tobias thinks the only time the gamble makes sense is if "it's kind of like play money" and the homeowner has enough in assets to cover the possible loss. "Here in South Florida especially, I've seen too many people who did this who lost their homes," he adds. "It's kind of like investing on margin: You're taking risks."

Keep up with your wealth and mortgages and follow me on Twitter @JudyMartel.

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