Is deferring my mortgage to invest in stocks a good idea?

Question

Hello Bigger Pockets! I'm a new member and first time poster.
I'm 25 years old and have been living in my first home for a little over a year. My strategy is to 2 year live-in flip the house, and I've also been house-hacking (renting out a room). When the covid started popping off last month, I immediately put my mortgage into deferment with my loan provider. I'm still working my full time job with no changes to my paycheck, so my plan is to take the money I would be spending on my mortgage for 3 months and use it to invest in the stock market. On July 1st, I'll start paying my mortgage with the understanding that my 3 months of missed payments are pushed back to the end of the loan. Then in April of 2021, I'll sell my house and buy my next flipper with the equity from the sale AND my stock market gains.
My question is... is this a good idea? Is it a shady thing to do?. Are there any details that I overlooked or are there any reasons this idea won't work? I'm still very new at real estate so I'm unfamiliar with a lot of this type of stuff. Thank you for any input.

Avery Carl · Answer

After re-reading I am currently hating myself for sounding exactly like my father lol.

Avery Carl · Answer

No. Be EXTRA sure to read the fine print on what the mortgage deferment actually IS. I have also heard rumors that having filed for the deferment will be reported and can affect your ability to get a loan in the future (even though they say it won't). It's not worth risking your borrowing ability to throw money at what is essentially gambling.

Tommy Chan · Answer

good if you make money in stocks, but bad if you lose.

Artie Butcher · Answer

Thank you for the replies! After seeing the unanimous "no" on this feed, and doing more independent research I decided to take your advise and not do the deferment, and also to cancel my forbearance. When I called Wells Fargo they ensured me that the emergency COVID forbearance did not negatively effect my credit. So it looks like I dodged a bullet by not switching my forbearance over to deferment like my original plan was. I'm also very happy to say that I've been able to work a ton of overtime at my job, so I was able to get caught up on my mortgage AND keep my stocks. Win-Win:). Now that I'm back on track, I'm going to use my down time (I live in a city that's still locked down) to read my 5 Bigger Pockets books that just came in the mail. Cheers! and thanks again for all the good advise on my first post.

Michael Lettieri · Answer

@Artie Butcher

I think this is unanimous that it’s a terrible idea. If you would’ve bought at the bottom of the market in March maybe this would’ve been a good idea. Very good chance we will hit those March numbers again after we get a second surge which is almost assured with people ignoring distancing measures. You also want to buy stocks and hold for 5 years, if you hold for any less time that is speculation and you’re not smarter than Wall Street.

In order for it to make sense you need a guarantee that the market would beat your mortgage rate of say 4%, which the market does not beat anyway. Otherwise banks would just invest in stocks and not back your mortgage.

This is before factoring in the mark on your credit others note.

Keith Kellermeyer · Answer

Hey Archie!

No, deferring your mortgage to invest in stocks is not a good idea. Using debt to invest, and potentially lose, could cripple your financial picture. I'm not positive on this, but doing so may even be against the law? Gambling with bad debt is one of the several ways the economy crashed in 2008.

Hope this helps!

Edit: A quick edit here, when I originally viewed your post, only the title appeared, with no body post, so I missed all your details. That being said, I still stand by that it is a bad idea to do so.

Michaela G. · Answer

Good luck thinking that you'll be able to buy another house in a year, once they see on your credit report that you did a deferment.

While it may not hurt your credit score, it will show on your report that you didn't make payments for 3 months, which means to them that you didn't have any savings or you lied - either would be a red flag. It would screw up your credit for years.

Sharon Steenbergen · Answer

@Artie ButcherDefinitely not a good idea. A close friend of mine asked for forbearance on their primary mortgage due to COVID. During this time he was also refinancing the mortgage on their second home. The Mortgage company of their primary residence told him that it would not hit their credit, but Fannie Mae flagged their account and it showed up on their refinance....

Andy Mirza · Answer

@Artie Butcher I concur and add my "no."

Stick to your plan of house hacking and flipping. It's a good one. Diverting attention to the stock market is risky and may result in you losing the those three extra months that you otherwise would have been paying down principal.

From a moral point of view, those that don't need a deferment shouldn't get one. A functioning economy needs people to pay their bills on time. No such things as a free lunch. Someone somewhere is paying for that benefit to you, even if its the taxpayers collectively.

Is it legal to do what you're doing? Sure. You aren't the only one taking advantage of it but that doesn't make it right in my opinion. We all need to do our part in this thing to get us back on track economically.

Is deferring my mortgage to invest in stocks a good idea?

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