Using a home equity loan to invest?

GarySpicuzza · #1 (**permalink**) 11-03-2007, 12:01 PM

Is it wise to use a home equity loan to invest in securities?

No.

The risk is this: When you buy securities with mortgage money, the funds with which you’re investing are not your own.

Mortgage-money investments that go sour take the collateral supporting the loan -- the house -- down with them.
That’s a sad ending for the equity you spent your adult lifetime amassing.

Indeed, the NASD (the National Association of Securities Dealers), the world’s largest private-sector securities regulator, is so concerned with the practice that it is taking “enforcement actions” against brokerage firms that recommend this source of funds for consumers looking to invest.

One of the largest insurance conglomerates in the world, Aviva, recently issued a field bulletin which read in part:

Quote:

Effective November 1, 2007, Aviva will not accept any applications for life insurance or annuities that involve funding of such policies through a mortgage-related transaction on a principal residence. This applies to all life insurance and annuity products offered by any Aviva-related company.

The term "mortgage-related transaction" includes, but is not limited to, the following:
-Using home equity through the use of mortgages, reverse mortgages or home-equity loans to provide funds to pay premiums;
-Replacing fixed interest mortgages with variable interest mortgages with the intention of using the savings to pay premiums;
-Refinancing mortgages with the intention of using the proceeds to pay premiums;

-Reducing the intended amount of a home or mortgage down-payment to pay premiums.

Below is a true story.
Can't link direct because I don't have 15 posts.

h t t p: // www DOT watl DOT org/Verdict%20Articles/Knutson DOT pdf

Hermes · #2 (**permalink**) 11-04-2007, 10:48 AM

I agree. It is a very bad financial move to take out a home-equity loan to invest in any market.

It is very dangerous and in my opinion a risk no investor should take.

The home is already a huge liability as it is and possibly the biggest welath illusion especially to the middle-class.

Don't use your home as an ATM but use it for what it is designed for. Live in it. The end.

If you only feel wealthy due to your home then you're on your way to big financial problems to begin with.

Nasika · #3 (**permalink**) 11-13-2007, 10:15 AM

I am not native English speaker but loan and invest is two contrary words that can not be put together.

SCCA · #4 (**permalink**) 12-09-2007, 02:34 PM

I think if you can get a higher rate of return it's a great idea. if you loose your money though you'd be in big trouble.