Volume 1 Number 21
May 24, 2004






As part of an ongoing effort to improve the state’s financial literacy and provide information to consumers making important investment decisions, Florida’s Chief Financial Officer Tom Gallagher is warning Floridians about the risks involved in playing the stock market with the equity in your home.  

“Taking out a mortgage on your home to make an investment means you must rely on investment returns to make your mortgage payments.   You could end up defaulting on your home loan if the investment declines,” said Gallagher, who oversees the Department of Financial Services. “Investors who bet the ranch could lose it.”

With a rising stock market, record low interest rates, and large gains in home value, some investors have taken out new mortgages, refinanced, or obtained lines-of-credit secured by their homes for the specific purpose of investing in securities. The hope is that the investment will not only pay the mortgage, but also generate additional income. Unfortunately, it doesn't always work out that way.

Taking money out of your house to buy securities compounds your risk for the following reasons:

  • Unlike investing with savings, when you invest with mortgage money, you stand to lose more than your principal if the investment goes sour. You can lose the collateral supporting the loan -- namely your house.  

  • You may put your money in higher risk investments than you might normally select, in an effort not only to match the rate of your home loan but in the hopes of surpassing this rate. Furthermore, with so much at stake, if a given investment does poorly, you may feel compelled to move your investment into even more risky investments to make up the difference, further jeopardizing your home, credit standing, and overall financial health.

“If you don’t have a secure salary or reserve funds to make mortgage payments in the event your investments lose value, you are taking a chance on losing your home,” said Don Saxon, Director of the Office of Financial Regulation which regulates state-chartered banks and securities in Florida. 

Consumers can contact the Florida Department of Financial Services’ toll-free helpline 1-800-342-2762 or visit the Department’s web site at www.MyFloridaCFO.com for additional information or assistance.