Using a Home Equity Loan to Invest
What is a home equity loan?
Home equity is a person’s financial stake in his or her home. A home equity loan allows you to borrow up to 125 percent of the appraised value of your home, less any existing mortgages. Consumers generally take out home equity loans for shorter periods than their original mortgages (five to 15 years versus 25 or 30).
Home equity loans have become increasingly popular in recent years. Low interest rates (typically higher than first mortgages, but not as high as other borrowing options) and the interest deduction are two reasons for this, but you should consult a tax advisor for the tax implications in your situation.
Lumps versus lines
There are two types of home equity loans: term (or closed-end) loans and lines of credit (open-end loans). The former is a one-time lump sum paid off over a predetermined time period, at a predetermined rate of interest. A home equity line of credit (HELOC) sets a maximum amount for the line and lets the borrower withdraw money up to that point, as he or she needs it. There are minimum requirements for paying back the principal — both in terms of time and amount — but the borrower can overpay (and then dip back in up to the maximum again). The interest rate on a HELOC is usually variable.
Is it wise to use a home equity loan to invest in securities?
Not necessarily. But, if you are financially stable, are not reliant on investment returns to cover your mortgage payments and are a knowledgeable investor, the home-equity gamble might be a way to secure low-interest money to use to invest in securities. Otherwise, it could be too much of a risk.
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. There are other options available if you want to borrow money to invest in stocks, and they don’t involve the risk of losing your home. Talk with your financial advisor to find out more.
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.
If you’re still game, you need to look at the specifics on both sides of the transfer. For example, if the interest rate on your home equity loan is four percent, you’ll want to make sure the investment you’re moving to promises a return that’s at least a couple of points higher. If you’ve got your eye on growth stocks, remember that growth stocks offer no guarantee of growth. Government-insured programs, while not offering the same potential for returns, might be a safer bet.
Before making any investment decision, it’s wise to discuss the specifics of your own situation with a financial advisor.
Chris Navi - More resources for home equity loans and investing at www.fundinglist.com
Previous Articles Highlighter:
You Can't Lose With The Proper Forex Trading Strategy (1)
You must have a strategy in order to avoid making decisions based on emotion or inaccurate information. This is the only way to truly make money in forex (and we all know that is the reason you begin trading in the first place).
Why You Need Birds In Your Garden (2)
The next job your garden birds will help you with is re-seeding of plants, this may not be an exact science but if you are a fan of a natural garden then they will be a useful and completely natural way of distributing the seeds of your favourite plants around the garden at just the right time of year, if can be a great surprise when you see where it turns up next year.
5 Rs To Starting An Online Home Based, Drop Shipping Internet Businesses: Part One (3)
Once you have a more narrowed down list of ideas, you can make use of a keyword tool. There are numerous tools available, such as Google Adwords Keyword Tool (https://adwords.google.com/select/KeywordToolExternal), and Overture, now part of Yahoo (inventory.overture.com There is also Wordtracker.com, where you can try out a trial version of their keyword research tool for free (www.wordtracker.com Each of these tools allow you to get an idea of how often a certain keyword or phrase is searched for in a given month, and also a list of related searches and how often those phrases are searched for.
2007 Wholesale Business Opportunity Or Weekend Lottery? (4)
Getting what we want out of 2007 should always be part of our printed goals for sure. Joaquin Reveron is a coach, mentor, speaker and online wholesale veteran. His focus online are on eBay and helping people create wealth through wholesale niches.
Find The Forex System That Is Right For You (5)
In the past, the term Forex was something that only large corporations and businesses used. The massive foreign exchange market is where companies invest in the currency market. Now, using a Forex system, anyone with a personal computer can invest in the currency market from the comfort and safety of their own home.
The Need For Spyware Removal (6)
The second type of spyware is utilized for criminal activities. This type of spyware collects personal information about you like your passwords or credit card accounts. They do this by monitoring your keystrokes every time you enter your personal information when ordering something online or subscribing to a service.
Rate People And Get Yourself Rated On Websites (7)
There are so many people out there who wants to have themselves rated but they dare not ask their friends to rate them fearing that they might be laughed at.
Managing Your Cash With A Credit Card (8)
The Credit Card is a way for better management of your finances, a way to save money or spend extra money. The financial companies and the banks offers us plenty of choices and facilities in order to choose them as the administrators of your finances.
Surfing Gets Fired Employee Promoted (9)
Do not assume that because you know someone, that they will respect your rules. In this age of budgeting, company resources are valuable. Many companys have instituted extravagant security measures to ensure their employees and visitors remain honest.
A Guide On Refinancing Home Loans (10)
Finally, be sure that you know exactly the terms and the facilities that your loan company offers for a home loan refinance, because you dont want any surprises when it comes to your house.
Newer Articles Highlighter:
Real Estate Investing - The Top 10 Financing Mistakes (1)
Not Properly Setting Up Your Entity If you list your occupation as real estate investor on a mortgage loan application, you are in for a tough road ahead with the underwriter.
Understanding Rectangles On Forex (2)
I prefer to buy at the lower boundary if in an up trend and sell at the upper boundary if in a down trend. This can be a very effective trade as the risk is small.
You Too Can Be Making Money On The Internet (3)
Search engines need to find your website and they do this through keywords. Do you know what keywords are? Then I suggest you not start your website just yet.
To Hold Or Sell Real Estate (4)
Then again, if you bought them at the top of the boom you may have paid too much for them and if you sell now you'll make a loss. Remember, if you decide to hold, it will be for a few years because the boom won't come back in six months time, so ask yourself if you can afford to hold for at least five years.
Child Discipline: Teaching Your Children About Consequences (5)
One of the easiest and most used methods (even if you don't realize it) is to use if/then consequences. (Everyone has heard, and many parents have even used, this: IF you do not finish your peas, THEN you get no dessert).
Potty Seat Or Potty Chair: Which Is Best For Your Potty Training Child? (6)
Jill Brennan has potty trained two children, one easily and one with a lot of problems. Save yourself time and frustration by learning from her mistakes: www.pottytraininghowto.com Sign up for a free e-course on how to make potty training fun for you and your child.
7 Things You Can Do Today To Start Earning A Full Time Income Online (7)
People who have grown tired of the rat race, who want to spend more time with their families, and who want to work part-time in order to relax or take up new hobbies are earning a lot of money online by joining affiliate programs.
Using Audio Books As A Learning Tool (8)
A traditional print book usually contains text comprised of written characters, scenes and plots or it encompasses instructional data, biographic material or factual documentation. An audio book transfers the written script to digital format, which is often enhanced by award winning sound tracks and professional dialogue providers.
Can Network Marketing Equals To Home Based Business? (9)
Definitely but why did he stop? I was very puzzled why he told me that. We sat down and he began explaining to me why? He looked straight at me and said, "I haven't been spending much time with my love ones".
How Viral Marketing Works (10)
As in the case of Hotmail, it was limited by the spread of the message only over its own servers. You need to plan ahead in your strategy, and build scalability in your model.