Bull-markets, and especially bubbles, reward those who invest with leverage. The rise in the general stock-markets, commodities, and Vancouver RE, through most of 2009, has again encouraged risk taking and expectations of ongoing high returns. -vreaa
At RE Talks, 7 Dec 2009, posters discuss mortgage strategies -
unicas 7 Dec 2009 2:08 pm – “I would delay my payment as much as I can so I can use the cheap money for other investment opportunities.”
Marco911 7 Dec 2009 2:14 pm – “I would tend to agree. In fact, that is the only way to make some serious money in the long run. You want to essentially NEVER have anything paid off. You should always borrow as much as you can for as long as you can. The trick of course is to make sure that you’re returns on investment are higher than the interest you’re paying.” Marco911 continues 2:57 pm - “I will give you a personal example. My current residence is mortgaged to the max. I was paying 0% through my previously employer but now I’m forced to pay prime which is still not a bad deal since prime is only 2.25%. I have yet switched my loan so it is an interest only loan. I am not suggesting everyone run out and do this but I’m giving you my exact situation. I could pay the loan off in full right now and have no mortgage but why would I do that? If I am earning 10% return on my money (which is a really pathetic return) and my income keeps pace with inflation, why would I want to pay off my loan? If anything, I would want to find more ways to dump money into my 10% growth. That may be with more loans or by dumping the money in directly. So what if interest rates go to 20%? Well, if that happened, I’m pretty sure I’d be able to find an investment that would give me even better returns so the idea of paying off my home would still be pointless. However, let us assume all hell broke out and there was nowhere to put my money. Well, I’d simply pay off the loan.”
And if the value of your investments happens to drop? This is just another ponzi strategy for a bull market with falling interest rates.
Marco does make a good point. Why pay off a loan with X interest when your investments are earning more than X? The only problem is when investments slow down or rates go up.
I have always been skeptical of people who say things like this. If it was really that easy to earn more than the interest you are paying on a loan then why wouldnt banks just do that themselves?
If there was a more secure way to earn more money than lending money, the banks would charge more to make up the difference.