It's his home
, for gosh sake, don't screw around with it. Whenever you have a loan with your house as collateral, there's a risk of losing that house. If the past couple of years have taught us anything, it's that losing their homes is something real that really happens to real people.
If it's a second
home that he rents out for income, then, fine, its an investment and he can take whatever calculated risks seem reasonable.
This topic is frequently discussed here, for example in this recent thread
. There are passionate opinions on both side. I'm agin' it.
The basic issue is that loan payment bills are 100% certain, so if whatever is going to pay those bills isn't
100% certain then there's a risk of losing the house. Investments that are safe enough just don't pay that much more than the loan. You can do tricky tax calculations until the cows come home, and, sure, sometimes there might be some advantage to it, but there just can't be a big advantage.
Now, throw psychology into the mix and ask which way people are likely to err?
There's always a tendency for investors to be overconfident and to underestimate risk. And paying down debt and keeping out of debt is boring, unpleasant, and uncreative, whereas investing is interesting and exciting.
Now, throw self-interested advice bias into the mix. Let's say you are a salesman and your job is to sell investments to people. Obviously
, one of the commonest objections you are going to get is "But I don't have the money." How are you going to counter that objection? Show the prospect how to get the money. If you know the prospect is a homeowner, what are you going to do? Suggest borrowing on the home, and give all the reasons why that's a smart, sophisticated, safe thing to do.
The endless supply of salespeople with investments to sell guarantees an endless supply of "borrow-to-invest" advice floating around. If not from salespeople, then indirectly from people the salespeople have convinced.
Borrowing on a home to invest is a marginal
proposition, with real very-high-consequences risks
, and bunch of factors that all warp judgement in the direction of overestimating benefit and underestimating risk.
Benefit: your words
if we assume the investment gain is also taxed... the investment earning gain should be over the 4.3% interest rate to make some profit. Usually, 4.3% earning is considered conservative for long-term investment (e.g, over 10 years); therefore, the probability of making some profit is relatively high.
Risk: Losing the home.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.