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Is it Smart to Use a Home Equity Loan to Invest?

Picture of house on stilts over water with a dock, analogous to using a home equity loan to invest, leverage Mortgage interest rates have increased in recent years due to inflation the Federal Reserve. Using a HELOC to invest is far less tempting today than it was a few years ago. The big banks are still eager to lend money, but they’ve raised their lending standards and rates since the banking crisis of 2007-2009. 

After a period of real estate appreciation like we’ve seen over the past decade, home equity loans become more available to more people if they are willing to pay market rates. 

Here’s a chart of homeowner equity (mobile, turn phone horizontal for best experience):


The ideal use of a home equity loan is for home improvement that increases the value of the property by more than the borrowed amount.

But home improvement is not the required use. When you borrow from a HELOC, you just transfer the money to your checking account and do what you want. 

You can even use a home equity loan or line of credit to invest. 

Generally speaking, I don’t recommend using a home equity loan to invest for most people even when rates are very low. It’s risky to put your house on the line to chase returns. It’s better to save up cash and invest. 

But that’s a conservative stance. Money management that’s too conservative can prevent us from getting rich

Furthermore, with mortgage and HELOC hitting new highs in 2023, it makes zero sense to use a HELOC to invest. 

If you’re an experienced investor, it may make sense to unlock home equity under certain circumstances and when HELOC rates are considerably lower than long-term stock market returns.  

Why We Opened a HELOC (in 2014)

We opened a home equity line of credit on our primary residence at the end of 2014. We used our bank and mortgage holder (Wells Fargo) after vetting competing rates.

I wrote the first version of this blog post a few months later. Republishing it five years later, I hope to add some wisdom I’ve learned from the experience. 

Back then, I wanted to have access to our home equity if ever needed, but we didn’t have a specific plan to use the money.

Access to equity has always been cheap and tempting. We used a small portion to help fund our minivan purchase (since paid off), and it helped to smooth out monthly expenses when our monthly cash flow was tight.

But I maintain enough self-control not to use it to buy things I don’t need.

It’s a line of credit instead of a loan, meaning we can tap into it whenever we need it. The payment varies based on how much we use, but the interest rate is low compared to other loan vehicles. 

Over the years, I’ve asked myself many times, would it be smart to borrow money against my house using our HELOC and invest the loan into something else?

I’ve always said no. But frankly, it might have been a missed opportunity. Since January 1st, 2015, the S&P 500 is up more than 50%! My variable HELOC rate has hovered around 5%, but the bank sometimes offers fixed-rate advances closer to 3%.

I don’t think I’d ever deliberately borrow against my house to invest in stocks. But I might consider profitable real estate opportunities.

Would it make sense to invest on a real estate crowding platform like or Fundrise (review) with borrowed money secured by my house? Maybe. 

Please note: This is a testimonial in partnership with Fundrise. We earn a commission from partner links on RetireBeforeDad.com. All opinions are my own.

Or maybe even borrow money to purchase alternative investments? Those are not risks I’m willing to take. But my risk tolerance is low. Such investments might pay off over decades. 

When I first wrote this article in August 2015, I was thinking about borrowing to invest in Lending Club notes when the returns were still good. Those gains didn’t last, and I’m grateful I kept to my instincts and didn’t borrow from my HELCO to invest. 

But there are many different ways to look at this dilemma, so let’s dig in.

Personal Finance is not Black and White

People tend to prefer answers in black and white. But in personal finance, there’s rarely one way to answer a question. The answer depends on the situation of the individual or family.

As someone who has always had a reasonably low-risk tolerance, it seems like a risky idea to borrow to invest. My equity is safely parked in my home, keeping the mortgage payment low. If I pay extra on the mortgage, I should be able to retire without one in 12 years.

But another part of me thinks, well, if I can make 8% lending to real estate investors, or 10+% returns making direct investments in commercial real estate, why wouldn’t I borrow at 3% to invest? I could be like a bank and make a nice spread.

Or I could borrow at 3% and buy AT&T, which often yields 6%, plus price appreciation and annual dividend increases. 

I’d earn a 3% spread with low risk, plus the potential to make more. Not bad, right?

Or why not get a home equity loan on my primary residence and buy another rental property?

Well, the additional risk would probably keep me up at night, and worst-case scenario, an investment could go sour.

What this comes down to is the age-old question of become debt-free or leverage up and invest to build wealth.

This argument is personified in the fundamental beliefs of financial pundits Dave Ramsey (become completely debt-free, then growth wealth) and Robert Kiyosaki (use debt to become wealthy).

I can’t say I’m a disciple of either, but both philosophies are valid and work for different people.

Dave’s philosophy is very conservative and low-risk. By following his simple methods and lifestyle, individuals will go through their financial life with minimal risk involved, and will eventually become financially wealthy over time.

Robert’s philosophy is all about taking on more risk by borrowing money to invest, usually in real estate. Doing so will make individuals wealthy faster, though more susceptible to macroeconomic turmoil.

The wealthier I become, the more I think Kiyosaki’s philosophy is the better method for attaining greater wealth. At the same time, Dave’s approach is probably best for most people who don’t pay enough attention to their finances.

Often forgotten, there’s a middle ground, which is where I usually end up. 

Everyone should deploy a strategy that works for them, and not succumb to envy or end up swimming naked when the tide rolls out. 

Part of the reason why the rich continue to get richer, is they are willing to take on more risk to make more money. But the rich can afford the risk. If something goes wrong, they aren’t out on the street. They have the capital elsewhere to support themselves.

Our family becomes more financially secure every day. We’re at the point we can comfortably and conservatively take on more risk. Even if things in the markets turn ugly again, or I lose my job, our house will not be at risk.

We have enough assets in cash, stocks, and retirement investments to guarantee that won’t happen, as long as we don’t buy a bigger house or make a bad investment with borrowed money.

Looking at the Question Wearing Different Financial Hats

Over the years, I’ve read a lot of books and blogs of pundits with strong beliefs. I’ve also invested quite a bit myself and made some consequential financial decisions.

Through my experiences, I look at the core question, is it smart to borrow against your home to invest?, with many different hats on.

First, I’ll put on my pragmatist hat…

If you have a home and a mortgage, and invest, you are already borrowing against it to invest.

Homeowners with a mortgage are already borrowing against their homes to invest. 

How’s that, you say? Well, you’re already using leverage (a mortgage loan secured against your home) to free up cash to do other things.

A mortgage allows a homeowner to make a big purchase and spread out the payments over time. The price to do this is the interest you pay.

If you borrowed more against your home in addition to the mortgage, it’s the same thing. The only difference is the bank obligation would increase.

Put another way, let’s say someone owns a home with 30% of the home’s value in equity, and 70% of value in a mortgage. They bought the home with a 20% down payment, and over time the equity increased through appreciation and principal payments.

If they were to borrow 10% against the present value of the home, the equity would go back to 20%, the same as when they bought the house. At today’s rates, it may be possible to get a lower rate than the original mortgage.

A second payment increases overall risk, but not substantially so. The homeowner now has more money for profitable investments.

Next, I’ll put on my conservative financial pundit hat…

Using home equity to invest is a terrible idea, period.

Maybe this is the first thing that came to your mind. It’s a valid argument for a lot of people. The Dave Ramsey fan in me thinks this.

But Dave Ramsey is pretty extreme on the conservative side.

Irresponsible people who don’t pay attention to their finances should not borrow against their homes for anything. The majority of the population fits into this category. These are the people that never get ahead of the curve. 

I used to agree with Dave. However, my views have changed as my wealth has increased and in light of perpetually low rates.

Putting on my investor hat…

It depends on how you invest it.

I know plenty of people who have borrowed against their own homes to buy an investment property. Flippers do this all the time for short-term investments.

Entrepreneurs often take second loans on their homes to start businesses.

Borrowing to buy stocks through a margin account is common. So inevitably, some individual investors take out a home equity loan to invest in stocks at times.

Sounds like a ticket for bankruptcy if done carelessly, but what about for conservative dividend growth investors?

Or what about using a home equity loan to pay for education? Is that a harmful or risky investment? It depends on the degree and student, but the return on investment from education is one of the highest over the long-term. 

Taking big risks means big rewards. It’s all about how much risk you’re willing to take to accomplish your goals.

Borrowing money from one property (your home) to buy an investment property, is broadly acceptable.

Take the classic (and hereby simplified) real estate investing example, using two different investor approaches. Investor #1 has $100,000 and pays cash for a rental property of the same value. He’ll make good cash flow on the property since he isn’t paying a mortgage, and over time the property will appreciate.

This is a safe investment that would cash flow nicely. Assuming a 3% appreciation rate on the property, it would be worth $243,000 in 30 years.

Investors #2 takes the same $100,000 and buys four investment properties, each worth $100,000. She puts 25% down on each one. Each property cash flows positively, collectively about the same profit as Investor #1. Over time, however, she has four properties that will appreciate.

Assuming the same 3% appreciation, the combined value of all four properties after 30 years is $972,000. She’ll have paid about $329,000 of interest over 30 years (assuming 4.5% rate).

Note: This example, for simplicity sake, assumes the net positive cash flow of the paid off property of Investor #1 ($800, for example) equals the net positive cash flow of the four properties of Investor #2 combined ($200 x 4).

There are also significant tax benefits to real estate investing.

While riskier, Investor #2 would end up with more wealth over time. That’s the power of leveraging up in real estate.

Buying stocks would be different since there isn’t a hard asset at hand. The quality of the stock investment would be supreme, perhaps too important to take the risk in the first place. 

Return spreads would likely be lower than real estate, and taking the risk with individual stocks is not as predictable and thus riskier. Taking out the max and going all-in to the market is not a good idea.

What about investing in a business or education? Both could be excellent uses for the money. It all depends on perspective and comfort with risk.

Lastly, my Rich Dad Poor Dad hat…

Done smartly, investing using a home equity loan against your home will make you rich.

I’ve seen several interviews on CNBC and Business Insider that ask wealthy people how they became rich. They’ll often say because of leverage. They’ve used other people’s money (e.g., the bank’s) to make investments that made them money above and beyond the cost of the money.

This is the core of Robert Kiyosaki’s methodology. Treat your finances as if you are a business, utilizing capital in the best way you can. Use leverage when the numbers work, and take on more risk to become wealthy.

This is not an easy path. There will undoubtedly be more ups and downs along the way. The easy route is the conservative one, to pay off debts and get rich at a snail’s pace, safely and avoiding volatility.

Perhaps the wealthier you are, the more this thinking resonates with you. Wealthy people can take more significant risks because they have a foundation on which to fall back on. When you crunch the numbers, the math will tell you that borrowing at 2-5% against your home to invest could be highly lucrative over long periods. 

Surely some options traders out there borrowed a ton of money at some point and are now fabulously wealthy. It’s likely a larger number of people tried options trading on loan and went broke.

And we know from watching Shark Tank, that entrepreneurs borrow money in all kinds of ways to try to make it big. Some succeed. Many fail.

Six Years Later

Temptation is a powerful force. I’m tempted almost daily, passing by a doughnut shop near my workplace. Most days, I pass. Occasionally, I stop and buy a few.

When I first wrote this article five years ago, I was tempted to borrow to invest. It may have made me wealthier if I had.

But I’m glad I didn’t. 

Today, after the sale of my rental condo, I’m flush with cash. I’m quite comfortable here, knowing that our lifestyle is secure. I also have the option to find the right opportunity to make a strategic investment should it come my way. 

We can afford to take more risks. But today we’re in a position to take risks with cash instead of leverage. 

Maybe I’ll consider more seriously a new investment property using the saved up cash. Or we’ll use the extra cash to upgrade our home. But I don’t ever see us tapping our HELOC to invest.

The wealthier our family has become, the more it makes sense to take greater risks to produce more cash flow and asset appreciation. If we don’t, it may continue to be an opportunity lost.

But I sleep very well at night knowing I have cash in the bank and a vehicle to tap home equity if it’s ever needed. But not for investing. 

Update: We refinanced our mortgage to a 20-year, 2.75% interest rate loan in September 2020. Refinancing meant we had to close our home equity loan/line of credit.

We don’t need the access at this point. If in the future we want to use a HELOC to invest or for other uses, I’ll likely look to an online lender to find the lowest rates.

Disclosure: Long T

Have you ever used a home equity loan to invest in real estate or other assets? 
Is it smart to utilize a home equity loan to borrow against your house to invest in real estate or stocks? This article takes a balance approach to answering the question.
Featured photo by John via PureIMG free stock photos


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22 Comments

  1. RBD,

    Great analysis on a complex subject. It truly is deserving of different ‘hats’ and to be looked at through different lenses. I tend to agree with Kiyosaki too – especially with interest rates so low. I am 27 with some good equity in my home. I plan on borrowing against it soon to purchase my first rental property. Just having some difficulty finding a property that starts with solid cash flow

    Guy

    1. Thanks Guy,
      Quality of investment is obviously a big part of it. Borrowing against your house 10 years ago to invest in NFLX would have been ‘smart’, or more accurately lucky! Finding the right investment property takes a lot of diligence. I was not able to find anything worth the risk up to about a year ago. Decided to stop looking. I’m slowly starting to look at the market again now. Good luck with your pursuits. At 27, it’s a great time to start making some rich people decisions.
      -RBD

      1. You have written a very nice and balanced article RBD. Unfortunately, to be successful as a blogger, you need to have a firm stance on a subject – put all in index funds or put it all in dividend growth stocks. To be a successful investor, you need to be nimble to attractive opportunities, without resorting to labels.

        The issue with leverage is that you can make a lot of money in the process. However, if you are not “lucky”, you are likely to go bust/bankrupt. Are you willing to lose it all, if things don’t go your way, for the possibility of getting “more”?

        The other issue is that money has been cheap for a while, and some believe that as a result this money has been bidding up riskier assets, thus lowering their prospective returns. So those might say that you have been “late to the party”. Whether that is true or not, remains to be seen.

        I have personally used margin, as my broker has a very low and addictive rate of 1.62%. The reality is that I personally do not feel comfortable with debt as I never have had any debt in my life before. If you hold margin loan/investment loan, and stock prices decline by 20% – 30%, you might be much more likely to panic and start liquidating to cover the loan, rather than do the smart thing and add to your positions as you already do in your unlevered accounts. So debt adds another layer of psychological traps that might “trip” you.

        1. DGI,
          Thanks for your always thoughtful comments.

          Being late to the party is a timely mention, as rates have been low for a while now and stock appreciation has been steady since the crisis. Taking on this kind of debt at these rates likely won’t last long since the Fed is intent on raising soon. I write this now because I’m at a point where I am comfortable taking on more risk where I haven’t been in the past. But I won’t do it without careful consideration. Also, after having set aside ample cash for a rental property and it not working out, I’ve had plentiful ‘ammo’ the past year to invest in markets, and it is now mostly invested. If I can create other ways to build wealth, it’s something I want to consider.

          Margin debt at IB is absurdly cheap compared to other brokers. I can understand the temptation there to leverage up. I avoid it at my broker due to the cost and do t think I want that temptation. Margin interest has been a significant contributor to previous market corrections and last time I looked, it’s high. It takes balls to hang in there when times are tough, and a margin call would certainly skew psychology. I won’t ever leverage anywhere near margin call levels.

          What I like best about your writing and blog is that you are extremely focused on one thing, dividend growth investing. You are one of the most disciplined investors and bloggers out there. When I researched starting a blog, focus was exactly what the ‘success’ formula told me to do. But when I set out to actually write mine, I wanted to write about whatever was on my mind regarding finance and retirement, unapologetically. Otherwise, I wouldn’t enjoy writing here and I’d stop. Being different is another formula for success. I don’t always believe there’s one right answer to everything investing and finance related. So I like to address multiple sides of the argument, I’m always learning and keep an open mind.
          -RBD

  2. I have to admit – I’m too conservative for the HELOC-to-invest approach.

    We just did the reverse, actually. We installed solar panels and considered a home equity loan for the full amount, but instead cashed out just enough in investments to bridge the gap. In our case the loan fees and interest rate weren’t worthwhile – origination fee was something like $250, interest rate was 3-4%.

    I did choose to get a loan for my car, at 1.25% and no fees, rather than cashing out investments. The spread there was wide enough, and the bar of entry low enough, that it made sense to me.

    1. Amy K,
      Thanks for your input. This kind of stuff is definitely not for everyone. As I said, I haven’t done it yet, may not. But it is intriguing considering numbers.

      That’s very disciplined of you to fund your solar with investments. I looked into solar recently and it doesn’t make sense in my State yet. Though I was surprised at the affordability of an installation. Cheaper than I expected. I commend you for taking the solar leap!

      I’m in the market for a car too. Financing at 0.9% is available. That’s dirt cheap so I’m considering funding a portion that way.
      -RBD

  3. rabbithutch says:

    Interesting ideas that I had not really ever considered. After reading this, I think the way to use a HELOC to invest would be to open up a HELOC and wait. wait. wait. Then, when there is a significant market correction, like in 2008/09 you tap it to invest in indexes or solid blue chips at bargain prices (I know, its market timing). That idea intrigues me, and I may consider opening up a HELOC for that purpose.

    I guess I can see using a HELOC to partially fund a rental investment. Otherwise, I am too conservative to use it for day to day investing.

  4. Interesting perspective and solid analysis of the different options, RBD!

    You mention borrowing through a margin account is too expensive and, while true when compared with some HELOC options available now, the “loan” seems to be almost trivial to secure.

    In one of my accounts, I borrow on margin to buy solid, dividend paying stocks, profiting from the spread. As long as margin interest remains less than dividend income (I check monthly), the strategy works.

    Increasing interest rates will reduce the spread, eventually nullifying the benefit. On the other hand, I have a selection of dividend growth stocks that increase dividends over time, which increases the spread.

    As far as risk management is concerned, the account I’m talking about constitutes a relatively small percentage (maybe 5-10%) of our wealth, so I’m fine with that. I wouldn’t do it with too large a percentage.

    1. Good insight, Ferdis. Thanks. My margin rates are very high at my broker, so I never use it. I have heard others are much lower, especially IB. But I don’t use them. I agree it should be a small percentage of the portfolio. 5-10% at most.
      -RBD

  5. I live in Japan, and am considering getting a much larger mortgage than I need so that I can invest about 40% of the money in index funds. I can comfortably afford the repayments (they will be about 10% of monthly income) and when I went to the bank the other day to ask about rates, they quoted me a variable rate of 0.6%.

    Worth doing?

    1. Sendiben,
      Those are some enticing numbers. Japan’s rates have been low for many many years, and that hasn’t been a good thing as far as I understand. Good luck if you decide to pull off that maneuver!
      -RBD

  6. RBD,

    I’ve actually thought about this before, alas I don’t own a home. However, the idea of borrowing at a low rate intrigues me – as you note Lending Club or stocks like O/KMI. I think once you have a strong base of income, passive or active, then its not a bad idea. It allows you to expand your wealth at a more exponential rate. Like a board game such as Monopoly.

    Still yes there are risks, but if you have that solid backing then its not as strong.

    I’ve not had a donut in a while, I cannot even think of where a good independent donut shop is around here in DC – and I am not counting Dunkin or Krispy Kreme. Though they can be delicious.

    – Gremlin

    1. Gremlin,
      I know a couple good shops on the VA side, but none in the city. I like the chains too 🙂
      -RBD

      1. I can think of 1 on the VA side, specifically in Arlington… Heidelberg. They make loads of other stuff too.

  7. Bryan,
    You make some good points. Especially about dry powder. I’d like to think I’d make a good investment when there’s turmoil. But when bad stuff is happening, it’s hard to see the opportunities. I’d probably stick with blue chip dividend growers as I understand them the best.
    -RBD

  8. FV,
    Awesome that strategy worked. Takes some hardcore dedication to pay off a mortgage. Congrats.

    Man, I always need to pull out the Urban Dictionary when you write comments here!
    TTYL
    -RBD

  9. My local credit union is offering APR of 2.75% for a loan period of 5 yrs. I ran some numbers. Assuming the loan amount is $100K, total interest payments over the 5 yrs on the HELOC is around $7K. And let’s say we take that $100K and invest it at an annual return of 7% for 5 yrs. That would come to $140K at the end of 5 yrs, netting around $33K.

    Now, the HELOC does require you to make monthly payments of $1786 per month, or $21429 per year. What if you simply had the discipline to set aside this money every year for 5 yrs at a compound annual return of 7%? You’ll get $123K after 5 yrs. Which is just $10K less, than if you’ve gotten the HELOC.

    Unless I’m missing something, else the potential benefit is small?

  10. One point not mentioned is how much assets one has (outside the home) and the income to pay interest. I think those 2 points are really important.

    For example, when I first bought our place, I focused on paying the mortgage as fast as possible. 7 years later, the mortgage is significantly down, I have more investments and I am now choosing where my money works best as I have more assets. My skill set in the tech industry for work is not a concern either so I am not worried about being unemployed. These points cary weight in taking on debt in order to service it aside from doing the math on borrowing cost.

    I just renewed my mortgage and while I had 6 years left on it at the current payments, I wanted to invest more as it makes more money than the interest so I reset the mortgage to 25 years (max in Canada) and I have a rate of 2.65%. I can now invest over $1,500 more per month on top of what I currently save and invest.

    1. Earner,
      You make some good points. I’m in a similar boat with a more reliable career than it was five years ago. And my asset base is larger now, so I can handle the extra risk. We are not similar in that I cannot get a 2.65% mortgage, that is insanely low. Congrats on that.
      -RBD

  11. An alternative is a cash out refinance. You can refinance your current mortgage but pull equity out to invest. You will be tied to a fixed rate on the mortgage, not variable like a HELOC. Also, nothing says you need to pull out all of your equity – be conservative and only pull out some in cash, leaving equity in your home. I think it absolutely makes sense to take advantage of historically low mortgage rates.

  12. Jay @ dopedollar.com says:

    Given how well the markets were in 2019, it sure seems like this past year would have been a great year to take out a home equity loan!

    1. Its funny looking back on these comments. Back in 2015 they were sceptical about the continued growth of the US markets and now we are in the middle of the greatest distribution of wealth in human history! I’ve decided to use about 15% of my equity to invest with Schwab Intelligent Portfolios.