Q. I think I want to can my financial advisor, to whom I pay $5,000 a year for investment advice and tax preparation. The advisor recommended we refinance our 5.125 percent mortgage and take out a larger mortgage to pay off some credit card debt (about $5,500) and then let them invest $30,000 of the borrowed money.
Their argument is we could get a mortgage with a 4.5 percent rate — an after-tax rate of about 3 percent, and the markets have historically performed better than 3 percent. I think it would be less risky for me to borrow $30,000 and give it to a card counter I know. What are the Brain's thoughts?
A. There's too much unemployment out there already, but maybe it's time for one more. The Brain would kick this advisor to the curb.
On the surface, the argument makes sense because the markets have historically performed better than 3 percent, said Diahann Lassus, a certified financial planner and certified public accountant with Lassus Wherley in New Providence.
''Given current economic conditions and the fact that most people don't have guaranteed lifetime jobs, there is significant risk in following these recommendations,'' Lassus said.
Before we talk more about your advisor, a few points to make.
First, the refinance: You didn't offer all the numbers, including closing costs, but Lassus said those items should be reviewed carefully. Do the math. She said it could take several years to recover the cost of refinancing so you need to make sure you'll be in the home long enough for that cost recovery.
Next, on rolling your credit card debt into the mortgage: Lassus said credit card debt may be expensive, but it doesn't create a lien against your home.
She recommends you do not move unsecured credit card debt to a mortgage, but rather focus on paying down the credit card debt, which could eventually lead to freeing up more dollars to add to your investment portfolio.
''That is a risk that even as a professional advisor I would not be willing to take in the current environment,'' Lassus said. ''What happens if you aren't able to make the payments on your mortgage and you suffer losses in your investments?