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      10-04-2019, 01:00 PM   #31
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Quote:
Originally Posted by G35POPPEDMYCHERRY View Post
if your loan rate is lower than very conservative investing return why not take a loan.
Because you are failing to factor in risk. You wouldn't take out a second mortgage to invest in the stock market would you? Same thing.

Here is a good analogy:

Scenario: If you have $1 million in the bank, why would you take $300,000 out to buy a house for cash instead of just putting 20% down and keeping the money in the mutual fund to make money? If need be, you can pay off the house.

Answer: The spread that you’d make between the mortgage (at 4%) and the mutual fund )at (8% or so) is about 4%, and that’s assuming nothing goes wrong and that you can get your mutual fund out if you need. The problem here is that this is just all theory, and what I’m talking about is actual life. In theory, you’ve left out two major issues … paying taxes on the mutual fund (which makes your yield less) and risk.

You’ve compared a zero risk investment with a risk investment, and you don’t do that. You must factor in risk so you accurately compare one investment to another. Every time you pay your mortgage off, the bank no longer charges you interest. That’s a zero risk, compared to a mutual fund that does have risk. Unless someone is a fool, you would not borrow $300,000 against your home to invest in mutual funds.
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