Question for Mortgage Free Homeowners

[DaveInPgh]

Is there an interest rate that would entice you to remortgage your property to use the equity for other investments?

If so, what would you need the rate to be?

[scfr]

I am qualified to answer this question. I'd have to really crunch numbers to come up with a truly accurate figure, but off the top of my head I'd say 1%. In other words, ain't gonna happen.

[Fishindude77]

No.
I would have to be in dire financial straights to where this was the only way I could come up with some cash; serious medical issue, legal issue, etc.

[disneysteve]

I'm not mortgage-free but we're getting close (less than 40K owed).

Without giving it a great deal of thought, I'm going to say no. Once the mortgage is gone, I don't want to bring it back. I don't think even a 0% loan would entice me to remortgage the house for investing purposes.

[DaveInPgh]

The news reports about BREXIT pushing down mortgage rates to historic lows is the main thing that led to this question.

Although I would unlikely ever consider remortgaging our current home, it would be tempting during a downsize to put that equity into other investments.

[Nutria]

I'm not mortgage-free but we're getting close (less than 40K owed).

Without giving it a great deal of thought, I'm going to say no. Once the mortgage is gone, I don't want to bring it back. I don't think even a 0% loan would entice me to remortgage the house for investing purposes.

A week or two ago, one of the "regulars" (not sv2007) was vociferously arguing that retaining a mortgage was the best thing since sliced bread, because you could so easily refinance (EDIT: and pull out more equity for investment). Darned if I can remember his name.

[Jluke]

After putting in a lot of effort to eliminate the mortgage, I couldn't see myself taking out another one on the house I currently own.

I'll still be on the hook for whatever amount I borrow.

Investing is never 100% guaranteed to make you money.

If I wanted to invest in something else, I would do it the old fashioned way and save up for it.

However, I would not be opposed to taking out a mortgage on an investment property.

[Singuy]

I can't see the difference between those who get a home equity line on their paid off house to invest in an index fund vs those who refuse to pay off their mortgage early so they can invest into the same index fund.

Perhaps you are not taking advantage of dollar cost averaging? Or I missed out on 7 years of compounding interest and it's no longer worth it?

I didn't invest aggressively into the stock market, but instead put all my paycheck into my mortgage. Now that I paid it off 23 years early than my mortgage term..if I were to go back and get an equity line and do decide to put it in index funds..what's the difference?

[Fishindude77]

Now that I paid it off 23 years early than my mortgage term..if I were to go back and get an equity line and do decide to put it in index funds..what's the difference?

You can do whatever you want, but borrowing money against my paid for home to risk in the market in hopes of a positive return would not be something I'd take a chance on.

So many people talk as if the market is nearly a guaranteed return. It's not, people lose $$ in it every day. A paid for house is guaranteed. It's yours to keep and live in, so long as you just pay taxes.

[disneysteve]

I can't see the difference between those who get a home equity line on their paid off house to invest in an index fund vs those who refuse to pay off their mortgage early so they can invest into the same index fund.

If I pay my mortgage at the scheduled rate and use other money to invest, I'm not putting my house at risk.

If I borrow against the value of my home and invest that money, I am putting my house at risk unless I have enough other money to cover that investment if it crashes. But if that were the case and I had that money free already, why would I need to borrow against my home?

[tripods68]

I didn't invest aggressively into the stock market, but instead put all my paycheck into my mortgage. Now that I paid it off 23 years early than my mortgage term..if I were to go back and get an equity line and do decide to put it in index funds..what's the difference?

Singuy,

We've hashed this before.

Your home is worth $700k fully paid with over $250K yearly income. There is small risk for you. You have no kids with very little expenses. You can do anything you WANT.


What happen to RISK? There is risk. Risk is never eliminated. Market collapsed (like the Financial Crisis), where homes values declined tremendously. Risk could take in a form of health scare, auto accident, heart attack, unable to work; now must rely on wife's income alone, and/or investment. Maybe unemployment insurance or disability payment to hold you back for a while.


Assuming all the Risk, let's extend this to Post BREXIT...
So if you take out $500K in equity loan, after BREXIT your home is now worth $400K a year later, you are now "Up-side-down". The $500K equity loan must paid back monthly + interest in the down market. If your ROI does not exceed the interest cost, you are totally screwed. You made a bad investment choice. This is where we tell you. ___Fill in the blanks...Dumb Move man! After all, the #1 reason caused for divorce is money.


How to eliminate RISK. Sell your house, pocket the proceed. Buy $300K a home in-cash and pocket the rest or invest, or buy another home in cash. That's how you eliminate risk and avoid new debt.

[Singuy]

Singuy,

We've hashed this before.

Your home is worth $700k fully paid with over $250K yearly income. There is small risk for you. You have no kids with very little expenses. You can do anything you WANT.


What happen to RISK? There is risk. Risk is never eliminated. Market collapsed (like the Financial Crisis), where homes values declined tremendously. Risk could take in a form of health scare, auto accident, heart attack, unable to work; now must rely on wife's income alone, and/or investment. Maybe unemployment insurance or disability payment to hold you back for a while.


Assuming all the Risk, let's extend this to Post BREXIT...
So if you take out $500K in equity loan, after BREXIT your home is now worth $400K a year later, you are now "Up-side-down". The $500K equity loan must paid back monthly + interest in the down market. If your ROI does not exceed the interest cost, you are totally screwed. You made a bad investment choice. This is where we tell you. ___Fill in the blanks...Dumb Move man! After all, the #1 reason caused for divorce is money.


How to eliminate RISK. Sell your house, pocket the proceed. Buy $300K a home in-cash and pocket the rest or invest, or buy another home in cash. That's how you eliminate risk and avoid new debt.

Not fighting you on this and I understand there's RISK.
But how come the risk people take on NOT paying off their house but instead investing it for a potential higher return is OKAY but doing it backwards like getting a home equity line after your house is paid off is somehow higher in risk? You guys realize that you CAN use home equity cash that you borrowed to pay toward your home equity mortgage right? Only in the unlikely event that your index fund becomes 0 PLUS you losing your job will you end up losing the house.

[Singuy]

If I pay my mortgage at the scheduled rate and use other money to invest, I'm not putting my house at risk.

How are you not putting your house at risk? What happens if you lose your job? Until the last cent is paid, your house is always at risk right? That's why taking out an equity line from a paid off house is risky to begin with right?

[tripods68]

Not fighting you on this and I understand there's RISK.
But how come the risk people take on NOT paying off their house but instead investing it for a potential higher return is OKAY but doing it backwards like getting a home equity line after your house is paid of is NOT acceptable?

What you did is the opposite of most people. We did not pay off our home in 23 months. You an outlier. Great for you!

Our case, we want to put money towards retirement on regular basis, while raising two kids family + 2 dogs, paying for a private tuition, vacation, and so forth like most normal folks. Would we love to pay off our home faster? Yes. We are doing that every month paying extra. But our mortgage is not the only expenses.

We can sell our home today to get a lower mortgage and faster payoff. Yes that is a possible scenario we are looking that too. But that's a different questions.

[ThinkingCapital]

Interest rates are pretty low these days but, in my opinion, not low enough to make remortgaging a property a good idea, unless you're in a serious financial situation.