How To Make Money With Home Equity

You could be sitting on the best money-making opportunity and not even know it. Making money with your home's equity involves a concept called "interest rate arbitrage" and is an old idea that you can use right now to profit from an asset that otherwise might not be earning you any money.

Things You'll Need

• Home
• Access to equity lines of credit or a fixed mortgage type of financing
• Income producing investment or a bond or bond-like investment alternative

Instructions

1. Research interest rates for loans and for investments. Look for favorable mortgage loan rates that are lower than a tax-deferred bond-based or bond-alternative investment so that both the loan and the investment interest rates will remain relatively stable and "in sync" with each other over the term of the loan.

2. Obtain a cash out loan. This can be in the form of a home equity line of credit or a cash out refinance.

3. Invest the money into a bond or bond-alternative with a time horizon that is equal to the term of the loan. For example, if the loan is a 30 year cash out refinance mortgage, you will want an investment that can sustain a constant (or near constant yield) for 30 years.
   This will most likely be a fixed deferred annuity, a tax-free bond, or a high cash value, limited pay dividend paying life insurance policy.

4. After the term of the loan is up, cash out your investment and take profits.

Tips & Warnings

• The longer you can hold the loan the better. For example, all other things being equal, a 10 year loan will produce more money on the investment side than a 5 year loan. A 30 year loan will do better than a 10 year loan, etc. The reason is that the borrowed money is being repaid with simple interest while the bond or bond-alternative is earning compound interest due to the tax-deferred nature of the investment.

• It is crucial that you use a tax-deferred bond-based investment or bond alternative for this strategy.