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December 3, 2024
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Linking Northern and Central NJ, Bronx, Manhattan, Westchester and CT

Don’t Put Your Home at Risk

I’ve heard from customers that they are being bombarded from mortgage brokers with solicitations to do cash-out refinances to get funds to invest in the stock market and real estate. I’ve even seen it mentioned in this publication recently.

Please understand two things:

First, the mortgage business has slowed significantly and some loan officers are resorting to unwise suggestions to drum up business. It makes no sense to refinance a 2.50% rate for today’s rates of 4%, even if you’re getting some funds back. If you truly need the funds, a HELOC is likely a better choice. However, we don’t get paid on HELOCs, thus the suggestion for the cash-out refi.

Second, and more importantly, please be very careful about using the equity in your home to invest. There is logic to pay off high-interest credit cards, but to leverage your home to make investments can be catastrophic. As I’ve stated before in this paper, as a bankruptcy lawyer years ago, I’ve worked with people who did exactly that, prior to the recession. They lost their homes due to the desire to benefit from ever-increasing stock and real estate prices, believing prices could only go up. When it works out, you can be viewed as an investment genius. However, if you don’t recall, the stock market dropped over 50% and the burst bubble in real estate caused the recession and lead to mass foreclosures.
To consider numbers today, the Dow Jones was under 6600 in March of 2009. It’s now around 33,000 even after a drop of 10% since the beginning of the year.

Speak to your financial advisor about investing your funds, not a mortgage advisor who gets paid by how much you borrow. I fear he is not considering the possible repercussions when he makes that suggestion.

I was a stock broker from 1980 until 2012. I recall one client who responded as I suggested a certain investment. “I’d rather cry over the opportunity I missed rather than the catastrophe I bought.”

Do you really want to put your home at risk? You may regret missing the next Tesla or bitcoin, but losing your home is much more painful.

David Siegel
Teaneck
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