Borrowing to invest

sebastianj

I have a 'One account' flexible mortgage. I pay 6.25% interest and can take out £25K from it. I read somewhere that I could invest it at about 8%, is that correct and is it worth doing it?
rgd
seb

tradetime

I read somewhere that I could invest it at about 8%, is that correct and is it worth doing it?

Hard to know without reading what you read. Generally speaking I would say that people should only invest money they can afford to lose, borrowed money would not fall into that category imho.

Milarky

One option is to buy relatively high dividend yielding shares (whilst they are 'cheap') in the market and then sit on these. Dividends on some currently depressed household names may indeed be approaching 8 percent (and that would be 'net' of basic rate tax) but, of course, are not guaranteed either.

Depressed share prices can be expected to rise - bringing yields back to 'normal' levels whilst the actual income either holds up or even increases with time.

What if the interest rate goes up on your mortgage in the meantime? How high can you see it going? If you need to re-mortgage then you may need to liquidate your holding 'early' - and risk crystallizing a loss (but may crystalize a gain, hopefully)

hyposmurf

Fixed term savings account would be safest option, but once charges and taxes are taken out, you'd be out of pocket.You could invest in funds, but as said above you can't afford to lose this money if your investment goes pair shaped,could be quite ugly.

dunstonh

Gearing (borrowing to invest) is high risk. The rewards can be great but the potential for losses is greater as well.

It should only be considered by experienced investors and not a novice.

sebastianj

Well it seems there is no easy way to make any money, at least I have the option to get hold of that kind of cash, may be i should buy a house in Cyprus but how will I pay back the money?? Don't think any of my schemes will work.
thanks for the help.
rgd
seb

beingjdc

The problem you have is that even 8% works out as less than 6.25% after tax, unless your investments are in a tax-free scheme such as an ISA.

dunstonh

The OP isnt really talking about investing by the sounds of it either. More like saving and borrowing to save is rarely a good option (but not impossible).

It can only work potentially with investments.