I've received several questions lately that seriously worry me about the advice homeowners are getting from so-called financial experts.
Homeowners have been asking whether I think it's a good idea to refinance, or to obtain a home equity loan or line of credit (secured by their homes), for the specific purpose of investing in securities (stocks and bonds).
The short answer is: Don't even think about it. Make no mistake about this: When you use mortgage money to buy securities, you aren't investing, you're gambling.
It's not as if I don't understand the logic (as flawed as it is) behind the advice to mortgage your home in order to invest.
At least until recent days, the stock market has been doing better, and at the same time many people have seen the value of their homes go through the roof.
So people with little to no savings are being advised to tap into their home's equity to find the money to play the market. The theory is that the investment will return more than enough to make payments on a new mortgage or line of credit -- plus generate additional income.
This plan might work, but only if everything goes right. But does everything always go right when you're investing?
NASD, formerly the National Association of Securities Dealers, felt this issue was so serious that the organization issued an alert warning investors that if they must rely on investment returns to make their mortgage payments, they could default on their home loans.
"We are really concerned that this type of recommendation is inappropriate for almost everyone," said John M. Gannon, vice president of investor education for NASD.
In fact, such a recommendation to an investor could result in a sanction from NASD. This year NASD brought enforcement cases against three brokers for advising clients to mortgage their houses to invest.
