Author Topic: Refinancing + invest  (Read 692 times)


  • 5 O'Clock Shadow
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Refinancing + invest
« on: February 16, 2018, 12:13:09 PM »
We are in the process of refinancing our mortgage from a variable rate (5-in-1 ARM currently @ 3.875%) to a fixed 3.75% 15-year mortgage.  We are considering taking cash out and investing it in a low-fee, total stock index fund. The most we'd take out is $50,000. I have used an online calculator to determine that our debt will cost us 2.93% and our after tax return on our investment is estimated to be 7.8%.  (I used 10% as the before-tax rate-of-return for the index fund.)

I'd like to know what our overall net earnings would be.  Do I consider this a ~4.9% effective rate of return (the difference between 7.8 and 2.93)?  That's intuitive to me, but it is also simplistic, so I wanted to make sure I wasn't missing anything.

Rich on Money

  • 5 O'Clock Shadow
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Re: Refinancing + invest
« Reply #1 on: February 16, 2018, 05:32:18 PM »
You are assuming that you will get what the average return has been historically in the past.  You are assuming the returns in the past will look the same in the future.

The past may or may not look like the future, many believe it will.  It probably won't be in the short term.  Your gamble could work, but only if you don't need that money for sure for the next 20 years.  If you need it in the next 5 or 10 years, it could be worth less than it's value is now.  The markets are funny, and we've been riding a bull for a while.  You may see some volatility in the coming months or years. That may be hard to stomach with borrowed money.  Personally, I wouldn't do it.


  • Handlebar Stache
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Re: Refinancing + invest
« Reply #2 on: February 16, 2018, 10:16:26 PM »
Remember that the interest on your incremental borrowing won't be tax deductible...


  • Stubble
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Re: Refinancing + invest
« Reply #3 on: February 16, 2018, 11:35:08 PM »
10% market return sounds wonderful. Jack Bogle has predicted 4% over the next decade due to high valuations and Vanguard was something like 4-6%.

Guaranteed return vs non guarantee with much higher risk......

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  • Magnum Stache
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Re: Refinancing + invest
« Reply #4 on: February 17, 2018, 08:24:11 AM »
Bad idea, borrowing money to invest in the stock market.  Particularly given the current state of things.