Stock gambit can put your house at risk
Philadelphia Inquirer | 12/12/2004 | On Personal Finance | Stock gambit can put your house at risk:
Consumers are putting their homes at risk in search of easy money. They are refinancing their homes, pulling the cash out of the equity and investing the difference in the stock market in hopes that the interest earned willl outway the interest on the loan.
Sound tempting? It has to many.
Citing a Federal Reserve study, the NASD said that, in the bear market of 2001 and the first half of 2002, the most recent period examined, 11 percent of the cash that homeowners obtained through refinancings was used to buy securities. That compares with just 2 percent in 1998 and the first half of 1999, when stocks were booming. The NASD believes the practice has grown since that study was done.Moreover, the amount of this borrowed home-equity money used for investments - an average of $24,000 - was more than most other purposes.
So what's the big deal? The big deal is that interest rates fluctuate, home prices fall, and the stock market is unpredictable.
The worst case would be if your home price falls. You could end up owing more than your home is worth and not make enough on the home-financed investment to pay the difference.Want a better way to dig yourself out of debt and have a hope for retirement? Stick around. Over the next couple of weeks, the Wise Steward will be bringing you Dave Ramsey's Baby Steps, which are a sure fire method to dump your debt and get rich (slow). Or if you don't want to wait that long grab a copy of Financial Peace or Total Money Makeover today.
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