AgentMortgage

Homeowners eye stock funds as sweet investments

Is refinancing, then investing cash flow savings a wise move?

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"I went to a financial services seminar recently where they were advising people to stop paying down the balance of their mortgage by refinancing into an interest-only loan and then invest the cash flow savings in an indexed stock fund yielding 9 percent purchased through them. What do you think of this?" I like it a little better than the usual prescription of investing the cash flow savings in annuities. However, some borrowers can't do it profitably because their cost of funds is too high, and others shouldn't do it because the risks are too great. The Best Case Let's assume you have a house worth $400,000, a 6 percent mortgage for $320,000, and your investment strategy is to pay off the mortgage. The monthly payment on your fully amortizing mortgage includes a principal component that reduces the balance every month. That payment of principal, which rises every month as the interest declines, is an investment that yields 6 percent with zero risk. An alternative strategy is t...