Haven't read most of the thread, but is there anyone here with a paid off home who is borrowing against the equity of their home to buy stocks?
Yes, I suppose you could say we did that. We paid cash and then immediately got a no-cost mortgage at 4% for the max value we could get (75% of purchase price). Then put the mortgage check into our investments, which right now is 80/20 stock/bonds because we're in our early thirties. The financial math I worked out behind it:
- no-cost mortgages abound, making transaction costs a non-issue in this lending environment
- I expect a return of around twice as much as the 4% I'd be getting from the bank in my investments
- we already itemize our expenses, so a mortgage interest deduction takes the 4% interest rate down by nearly a third, making it more of a no-brainer
- (this one is the big one that not everyone will have): maxing out our solo 401ks is a big tax deduction, so we're saving at least $20k right off the bat just by being able to do that with the extra funds; if we didn't have the mortgage check we wouldn't be able to max those out this year. If you're not maxing out your tax-advantaged space because you're prepaying a mortgage, I think you're making a pretty big mistake.
We're keeping enough cash on hand so that we have 3 years of mortgage payments in a savings account - that isn't earning nearly as much money as it would by investing (around 1% in an online savings acct), but it also gives us great peace of mind and the option to max out tax-advantaged accounts if/when we need to and don't have the extra cash laying around. Having a fixed mortgage payment over the course of 30 years lets me use the liquidity in other ways that I think are more useful than simply paying off low-interest debt. Plus, a mortgage is a leveraged hedge against inflation, so I don't need to have TIPS in my portfolio bringing down my return average.
My last mortgage was paid down rapidly and I regretted it, which is why for this one I took out the largest, longest mortgage I could. Like it or not, the US government subsidizes home ownership through mortgages, and I'm gonna suck out all the good I can get from it! Anyway, that was my reasoning for taking out a mortgage even though we didn't need to. Hope this helps anyone who's thinking about either prepaying their mortgage down or going the reverse route.