[Jen]

My husband recently told me that his co-worker/friend’s financial advisor recommended that he take out a home equity loan and put it in a Roth IRA. He is 58 years old and plans to retire after 62. Can someone explain the logic in this.

I’m of the mindset that it’s better to pay off all debt before retirement, but I could be wrong. If the mortgage is paid off, wouldn’t it be better to use that money to max out the Roth every year?

Is this just the financial advisor’s way of profiting?

Last year I ditched Edward Jones and went to Fidelity but I am no expert on investments.

[Kiana]

The only way it would make sense is if u did a home equity loan at a way low % (2.25%) and put it in a hysa at like 5%. But with rates now that makes absolutely no sense plus the hassle.

[Twyla]

I will add that interest rate in HE is around 8%. He is making that much by not cashing out. I would never do this not to mention you will now have a debt payment that needs to be paid back. His advisor is selfish. The market has a track record but nothing is given. There are still risks to contend with. Just No.

[Tim]

As a Certified Financial Planner, I’d just like to say this is a terrible idea. Please encourage him not to do this and fire his current advisor immediately.

[Kennedy]

Financial advisors make no money off the equity you have in your paid off house. Thus, this (self-interested) advice. Yes, this is just this “advisor’s” way of generating profit for himself.

[Dan]

Congrats on escaping Edward Jones and no longer paying them a bunch to make you less than you can make on your own with index funds. Regarding this friend…I don’t think I’d pay any mind to advice from someone blowing money on a bad financial advisor giving terrible (and probably unethical) advice. And anyone desperate or greedy enough to take out a loan to invest is probably a very poor model anyway, since such measures are simply not necessary to achieve financial independence.

[Author]

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