The New Mortgage Casino
The Ledger tells us that even academics are advocating high risk strategies. Roger Ibbotson, a finance professor, "'If you want to lever up, you could do it with your mortgage.' Keep in mind that borrowing at 6 percent to buy stocks is no slam dunk."
"Let's say you have a $400,000 house, $320,000 in mortgage debt and $300,000 invested in stocks and bonds. You probably consider that mix pretty conservative."
"Your finances aren't that different from someone who has a $400,000 house with a $200,000 mortgage and a $300,000 portfolio partly financed with a $120,000 margin loan. After all, you both have $700,000 in total assets and $320,000 in total debt."
The NASD warned that people are using billions of dollars from home equity loans to buy stocks, so the typical borrower is much more at risk than these scenarios. It is a sign of the times when the writer has more sense than the experts.
"We all tend to engage in mental accounting, viewing our home and mortgage as separate from our investment portfolio. But look at the big picture, and you will realize you owe more money than you are owed and you are paying a higher interest rate than you are getting paid. What to do? For starters, you might want to use some of your savings to pay down your mortgage."