"Cash Out Refinance to Invest the Money in the Stock Market"

When I hear stories like this, it really gets my attention, especially if it affects a senior citizen. I met with this gal in her 70’s who came with her daughter. She was a referral from a financial planner. She told me she wanted to refinance as she had been paying her interest only mortgage for 10 years at 6% interest and wanted to start paying principal and interest at a lower rate. She told me she had refinanced 10 years earlier and was convinced to take equity and invest the money in the stock market. Always shocking to me, but this goes on all the time.

She had these funds invested with Merrill Lynch until the market began to crash and she panicked as many casual investors do and took her money out and put the remaining balance into a saving account. Even thought she had been told not to take her money out and stay invested, she felt it was better to take out what she had left, out of the $30,000 she had originally invested. Merrill Lynch holds the mortgage, there are 5 more years of interest only payments and then the balance will get amortized over 15 years.

The bottom line, it was not wise for her to go into an amortizing mortgage at this point, as her payment would have increased, as mortgage insurance would have been required. Why are there folks out there that convince folks to take equity out of their home to invest in the stock market, as that is not what a home is for or should be used for. I guess I already know the answer to the “Why”.

image courtesy of arztsamui/freedigitalphotos.net