Borrowing €100,000 against a paid-off home to invest in stocks

Mortgaging a paid-off home at 3.5% to invest in the MSCI World

The MSCI World closed 2024 with a gain of 20.35%. In 2023 it returned 19.50%. Two vertigo-inducing years that explain the question more than one homeowner with the mortgage already paid off is asking: if the market averages 7% a year and money can be borrowed at 3.5%, why not let the bank finance the portfolio? On paper, the spread is textbook.

The specific scenario starts from €150,000 in cash and two goals at once: investing more and being able to stop grinding for a while, whether a couple of years or until retirement. The profile behind it is no daredevil: a senior civil servant, a home appraised at €200,000 and declared assets of €320,000. The idea is not to spend the money, but to buy time.

The numbers: €100,000 at 3.5% and ten years in the stock market

With a €100,000 loan over 25 years at a 3.5% rate, the payment comes to €500 a month. By the end of the schedule, €180,224.49 would have been paid. The credit costs about €80,000 more than the principal, and that is before the invested money is taxed. Comparing against the index's historical 7% only works if the term is held to the end.

The scenario treated as prudent invests that €100,000 and applies ten annual returns ranging from +15% to -15%, with flat years and two downturns. The resulting average is 5.05%, below the historical average. After ten years, the cumulative return reaches €64,841.97; after taxes, €31,873.58 net. The full breakdown, year by year, is what shows the real size of the deal and what is worth reviewing before signing anything.

Will the bank let you mortgage a paid-off home to buy stocks?

Here opinions split. One camp holds that telling the bank the money is going into stocks is the fast track to a no, and that the deal only makes sense as a liquidity mortgage on a debt-free property. Another argues that, with that profile, approval should not be a problem.

The time-honored alternative also comes up: bricks instead of stocks. Buying rental properties with the debt makes the money's destination clear and, according to this approach, can yield returns above 7%. The rebuttal comes without anesthesia: managing tenants is work, and the stated goal was precisely the opposite.

The margin call some see and others deny

One of the most repeated warnings is that a sharp correction could trigger collateral clauses. If the value of the mortgaged property falls below the outstanding loan balance, the lender would be entitled to demand additional collateral and, if it is not provided, full repayment. Those who deny this respond that the collateral is the house, not the funds, and that as long as the payment is made, no one forecloses on anything.

As stress tests, they cite the two worst crises of the last century, 1929 and 2008, and recent episodes like the -13.13% of 2022. The scenario defended is a 15% plunge, bearable at the start, and a wait that could stretch to ten or twenty years.

When you lose the house and when only the savings

The strongest objection is not financial, it is one of principle: mortgaging your home to reach financial freedom sounds contradictory. And the risk is not symmetric. Leverage your savings and fail, and you lose the savings. Mortgage the house and fail, and you lose the house.

Hence the most cautious proposal: leverage only after a crash, when stocks have already fallen between 20% and 30%. Other voices, meanwhile, dismiss the whole plan with a smirk, ironically calling it "a foolproof plan."

With the index at all-time highs and two double-digit years behind it, the plan hinges on a variable nobody will sign for: how long the market takes to recover. The numbers of this particular case hold up. The timeline, not so much.