Why not refinance your mortgage and invest the equity?

Question by jeremyweiser: Why not refinance your mortgage and invest the equity?
Why not take equity out of your home from refinancing and put that into an investment vehicle that earns you interest? Considering that home equity doesn’t earn you any rate of return, wouldn’t this be beneficial?

Best answer:

Answer by AnOrdinaryGuy
Yes, it’s a good idea, but you have to take into account two things: the investment will have to earn more than the interest on the loan, and you also have to be prepared to pay income taxes on the profit from your investment when you cash it in. And it’s very hard to find an investment that will guarantee any rate of return. Bonds can do it but most bonds don’t pay as high a rate of return as lenders charge on their loans.

What do you think? Answer below!

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5 Responses to Why not refinance your mortgage and invest the equity?

  1. rain says:

    but compare the interest rate with the rate of the equity you withdraw or borrow out. See which rate is greater.

  2. qman says:

    Not a good idea. You’re not going to net anything unless you put your money into investments with a higher risk. People were doing that like crazy back in the late 1990s and early 2000s. They got burned big time. With the market at another all time high, it’s not the smartest thing to do.

  3. ctarr12 says:

    I would say it’s not a bad idea. You get the tax advantages of the interest paid on your mortgage and get to hopefully pick a good investment vehicle that will make you good money. I would however, strongly recommend you seeing a financial adviser though and make sure he/she understands what your investment goals are.

    Good luck…

  4. open4one says:

    It depends on the interest rate you’d pay on the mortgage, reduced by the tax effects assuming it it deductible, and the return you’d get on the investment, reduced by the taxes you’ll pay on the gains.

    Once you know that, you have to factor in the risk of the investments not working out, or the likelihood of the interest increasing if it is adjustable.

    Personally, I don’t think it’s very smart.

  5. Mr. Mortgage says:

    If you are seriously considering doing this, you can look in my profile and email me at either address listed. Right now you may qualify for a 30 year fixed rate mortgage with a very low interest rate; I also work closely with some financial planners from Axa that may be of service to you as well.

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