I would try to pay off your loan, rather than try to cash out now. In another ten years or so, alot can change. In 1992, the prime rate was as low as 6%, but rose to over 9% by 2000. Hell, in 1981, the prime rate was over 20%, but back in 1976, it was as low as 6.25%. Things can change, and I'd think it would be wise to have an asset of that value completely paid off. Housing is typically the single greatest cost of living, and if you can eliminate that cost, you'll have your entire house payment to invest down the road. You are probably going to have a hard time selling your house for much over your purchase price when interest rates climb back up to ~9% prime rate.

If you look at the history of the prime rate over the last 30+ years, the recent low rates are an aberration, not something the market can support indefinitely. Once your house is paid off, your entire house payment can be put into savings or bonds at rates most likely twice what you can get now. I'd rather have the full amount at twice the rate in five years than 1/2 the money at half the rate for five years.

Your home equity is likely the safest investment you can make, IMHO.

 

No really makes a good point. If you locked into that 15yr in the last couple years (you never said what your current rate is) you probably obtained close to historic lows in mortgage rates. A rate that some people would kill for in other economic times. Think carefully before being talked into any kind of variable rate that can change drastically over time for the promise what you might earn.

It all depends on your desired level of risk. How much are you comfortable with.

The US ecomony has historically been one of the best in the world, and the stock market one of the best places to put you money....over time. You are betting on that to continue if you go with an IO and put your equity to work in something else. If for some reason the ecomony tanks, (and I make no arguement that it will) that variable rate could go way up and stocks could freefall. You would then be kicking yourself for giving up the 15yr.

I do not disagree that the IO can have huge advantages, but you also bear risk. I also do not wish to put myself out there as the end all expert but I do know some things about money.

10 yrs financial analyst
BA accounting
current MBA finance student.

I only argue against those saying what a great tool it is, and it can be, is that I am more risk averse than some. I also put 20% of salary annually into the market, because I believe in it, and I want to retire early. I also think that if you have locked into one of the best mortgage rates in history that you do not get out of it for something else unless you are quite sure of your ability to secure a great rate on an IO loan, you understand how it works, and you are confident in your ability to get a better rate of return in the market. Not everyone is able do that.

Someone once posted on another thread on this board, "The stock market is like gambling, only invest what you can afford to lose." I think that market index funds are a great way for make solid returns over time, just have a plan for short term losses in your home equity if you make the switch and things don't go the way you planned.

Also remeber that someone can tell you they are an expert and that these things are great, but others with just as much knowledge and expertise will tell you they are junk. Neither are fact, they are opinion based on experience. Just make sure the advice comes from third parties and not someone who is going to make cash off you by selling you something. Good luck.

 

If I were to take a home equity loan to purchase something, it would be a down payment for another house, not stocks. (alright maybe xmsr )

But that's just me. Real estate around here is appreciating faster than most stocks are gaining.