Viewing Question: I make $150,000 a year and live in a house worth approximately $450,000 which is fully paid off. I’ve been thinking about taking a $300,000 mortgage and investing the assets in the stock market. Is this a good idea?

I make $150,000 a year and live in a house worth approximately $450,000 which is fully paid off. I’ve been thinking about taking a $300,000 mortgage and investing the assets in the stock market. Is this a good idea?

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1 Response

  1. This is a good question. There’s no easy answer to this, and you should definitely talk to an advisor or accountant before going forward but let’s run through the reasoning for doing this: You take advantage of low interest rates to borrow money cheaply to invest and may also receive the mortgage deduction for your mortgage interest payments as an added bonus.

    Generally speaking, the interest rates on mortgages are currently going to run 4-5%, so this is your hurdle rate for the investments. Based on historical market performance, this is very doable, but the same interest rates that are keeping mortgage rates low are crimping yields in the bond market. You would probably have to go out fairly far in maturity and maybe take on some credit risk too to get good enough yields to make this attractive. If you have confidence in the stock market, then over a long period of time, stocks have historically performed much better than the 4-5% hurdle rate. However, you shouldn’t do this, generally, unless you’re willing to pay the mortgage from your income or other assets. While the stock market has historically performed very well, over fairly long periods of time, the stock market can flat too or negative– and if you’re taking money out to pay for your mortgage payments, you can very quickly put a massive dent into your principal.

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