6 Deadly Sins of Home Equity
Don't even go here. Buying stocks and bonds with savings is investing. Buying them with borrowed money is called gambling, and if you ante up with home equity money, it's gambling with your house.
Of course, gambling is popular. The Federal Reserve Board found that in 2001 and the first half of 2002—the most recent period it reviewed—11 percent of mortgage refinancing funds were put into stocks and other financial investments. That's up from less than 2 percent during the two years prior.
Here's the problem: Interest rates on home debt are hovering around 4 to 5 percent for a line of credit and 7 to 8 percent for a loan—still low by historical standards. But if interest rates rise, what you owe may increase at a faster rate than your investments. You lose; the bank wins.