To pay 5% rate and make a 5% rate even when it seems like a Wash

When I usually ask clients the question above they usually say no they wouldn't do it and it doesn't make any sense because it'd be a break even, not worth the risk, whats the point (shrug)?

It all depends on the point of view....

To that I usually start to discuss the options below:

When the rate you borrow may be tax deductible and the rate you're making on your money may be tax advantaged (Roth IRA/401k, IRA, 401k, 403B's, Keogh's, defined benefit plans, profit sharing plans, PLI policy, real estate, etc) it could make sense.

Borrowing from your home mortgage at an example rate of 5% at the 40% tax bracket for federal and state could bring the net cost of the loan after tax to 3% so you'd be earning a 2% net profit assuming the 5% being earned is in a tax advantaged environment as mentioned above.

The 5% could be tax deferred(pay tax later in the future) or tax free depending on how you structure things.

Another benefit is that the payment you're paying at 3% net after tax has interest based on a declining balance (mortgage principal reduces over time on fixed loan) while the interest you're making would be 5% on a balance that is compounding year after year/increasing balance.

The growth of your net worth and cash flow could grow exponentially if the spread between the rate borrowed after tax and the rate reinvested were even higher.