Why pull out the equity in your house, if do dont think your investments will yeild more thn the interest ?
Query by Chris J: Why pull out the equity in your residence, if do dont assume your investments will yeild a lot more thn the curiosity ?
People are allways reccomending to pull out the equity in your house and use that funds to make investments, But what is the interest for the Equity line of credit and what if your investments dont yeild more than that cost. I just dont get it ?
Greatest response:
Reply by Charly
Really why do that?
What do you assume? Response under!
I don’t think people say to take equity out of your house to invest, but taking it to pay off high-interest credit cards does make sense, because what you will pay on an equity loan is nowhere near the interest you pay on credit cards.
While lots of people that I know borrowed money every year against their house, I got a 15 year mortgage to start and never refinanced. If I had kept that house it would have been paid off by now. More equity is better. In 5 years when everyone is complaining about their house payment, you will be the genius with low payments and not long to pay off your mortgage.
You are right. There are a lot of investment and refinance companies out there telling you how to reinvest the equity from your home. The problem is, as you pointed out, the gains from those other investments need to guaranteed more than your mortgage payment or you had better be financially able to cover the additional expenses if the investment does not produce the needed income. Why do they preach such things, because they stand to make gains if they can persuade you. I am now retired and have paid my first home off. Good thing, because companies now a days do not appreciate the long term experienced dedicated technical worker.
I think it is completely absurd to do that for 99.99% of people.
It seems the people that are generally recommending that you do that are mortgage professionals who want the commission on the loan, or investment professionals who to get more assets under management or generate a commission.
Always look at who is making the recommendation.
Another thought, “Few people brag about how much they lose in Vegas”…
People only brag about their successes, and generally hide their failures. There are probably more people than you know who have lost some wealth doing this, but they are not lining up to tell you.
Good luck, and be careful!
Ken Clark
Certified Financial Planner
No respectable finance advisor would recommend this. You have to make more than the interest you are paying on the credit line PLUS inflation just to break even. This is a sucker’s strategy. It might work for short periods of hyper-inflation in house prices, but people are now regretting their foolishness in following this ‘advice’ which only benefited unscrupulous lenders.