Thank you Norbert for your remarks. To further explain, I am not really borrowing to invest, I am borrowing to take advantage of being able to deduct the interest on the loan from my yearly taxes and I have additional funds available  to use for the improvements.

Why use my money when I can use someone elses, plus if I stick the $50,000 into an investment paying 6.65+, then so much the better.

 

thanks again

hex

I agree with Norbert... pay back the loan.  If you look at the total return of some of those high yield securities, you will see negative total returns.  You can't get those yields without taking risk.

erryl

 

hexdump:

I recently took out a home equity loan ($50,000) to do some major improvements on our house, and the interest rate is only 6.65 %

It got me to wondering if I would make sense to take the  $50.000 ..........

Gee Hex,

It got me wondering if it would make sense to do the major improvements on your house as intended, isnt that what you borrowed the money for?

Otherwise, FWIW, I agree with the others. 

Good Luck

Brian

Borrowing to invest is a very dangerous proposition for most investors, IMHO... even more so in this current market environment.  Chasing yield has very real risks... they don't hand out hundreds of basis points for free without equivalent risk.

-JavaJoe 

hurleyhuckster:

hexdump:

Gee Hex,

It got me wondering if it would make sense to do the major improvements on your house as intended, isnt that what you borrowed the money for?

Otherwise, FWIW, I agree with the others. 

Good Luck

Brian

Thanks again for all the ideas.

And I probably didn't do a good enough job in explaining what I was doing. We are going ahead with the improvements and we have the available $$$ in a money market fund so that I could write a check for the improvements.

However, it seemed to make sense to borrow the $$$ since the interest is deductible on our yearly return, about $1400.00/year according to last years return. So, given that, I will be getting a check from the bank for the $50,000 and I can merely put it into safe investments like the money market account and earn 3% or into ING and earn 3.4%

I was pondering about taking a bit more risk to be able to get a return that would be closer to the 6.65. I saw some CDs that were in the 5% range.

Hex

You keep mentioning 6.65% - where are you going to get a guaranteed 6.65% return? I agree with the others. But I think you have convinced yourself otherwise. And I'm not sure you can deduct the HELO if you don't invest the 50k in your home. But that's another conversation.

Derekgaddy:

You keep mentioning 6.65% - where are you going to get a guaranteed 6.65% return? I agree with the others. But I think you have convinced yourself otherwise. And I'm not sure you can deduct the HELO if you don't invest the 50k in your home. But that's another conversation.

The 6.65% I quoted is the interest rate on the HE loan, and is the rate I am trying to find for an investment.

We're signing the loan docs today for a 6.65% home equity loan at Amegy Bank, a small local bank in Houston TX, and the $$$ is going to be used for the improvements.

The question is "Where do I stick the $50,000 while the work is in process as I won't need the whole amount in one lump sum payment. 

A money market would yield about 3.5%, so my fuzzy math shows a reduction of net worth of about 3%, and if I were to put the $50,000 into a 10 year CD for about 5%, then the net worth loss would only be about 1.5%