‘Is this wise Or does it seem really risky. My husband thinks we will be ok with diversifying it.’: Should I refinance to pay off debt and invest in stocks, or is it too risky?

Hey Money Minder!

So, here’s the deal. My hubby and I are in our early 30s, got 3 little munchkins running around. We’re up in Canada, eh?

Our yearly pre-tax income is sitting around 190k, and our home is worth a solid $2.5-3 million. Not too shabby, right? We still owe about 420k on the mortgage.

COVID threw us for a loop, especially with me on maternity leave. We’ve accumulated about 170k in debt. Yikes. Thinking of refinancing to clear it all up and start fresh. Our broker said we could take out an extra $450k, bumping our monthly payments by $2500 at a 5.9% variable rate. She’s betting the rate will drop in a year.

We’re considering taking out that $400k extra, paying off our debts, then diving into the stock market with the rest. Is that a smart move or plain ol’ risky? Hubby thinks we can handle it by diversifying.

What do you think, Money Minder?

Catch you later,
Financial Explorer

Response from THE MONEY MINDER:

Hello There,

Hello,

It sounds like you and your husband are facing a challenging situation with accumulated debt and considering refinancing to clear it off. Firstly, I want to commend you both for recognizing the issue and taking steps to address it. It’s essential to prioritize financial stability for your family, especially with young children to consider.

Refinancing can be a viable option to consolidate debt and potentially lower interest rates. However, the proposed variable rate of 5.9% may be a bit high, especially considering the uncertainty of future rate changes. It’s crucial to carefully assess the risks involved in taking on more debt, even with the intention of investing in the stock market.

Given the current economic climate and the unpredictability of the stock market, investing borrowed money can be risky. While diversifying your investments is a good strategy, relying on borrowed funds to do so may not be the most prudent approach. It’s essential to prioritize paying off existing debt before considering further investments, especially if it involves taking on more debt with variable interest rates.

Instead of focusing on investing in the stock market at this time, consider creating a solid emergency fund, paying off high-interest debt, and establishing a more conservative financial plan. Once your debt is cleared, you can then explore investment opportunities with a more stable financial foundation.

In summary, it’s crucial to prioritize clearing off your existing debt and maintaining financial stability for your family before venturing into additional investment opportunities. Taking a cautious and practical approach to your finances will ensure a more secure future for you and your loved ones.

All the best from THE MONEY MINDER.