Many people have a variety of investments, from things as simple as savings accounts and CDs to mutual funds and Roth IRAs. We use them to suit a variety of purposes. Still, many of us don’t realize the investment potential of probably the biggest asset most people have: our house.
It’s very easy to think of your home as just a shelter and a gathering place, but you can also use the equity in your home to take cash out and use it for maintenance, to boost your retirement fund or to consolidate debt.
We could talk all day long about the numerous benefits of utilizing your home equity. However, it’s always beneficial to see a real-world example. Angela M. of Los Angeles was able to accomplish multiple goals when she did her cash-out refi.
Angela was going through a divorce and needed to get the home refinanced in her name. While going through the process, she decided to take advantage of the opportunity to use her home equity to improve her situation.
“Being debt free was the main goal,” she said. “I own my own consulting business, so now I have very manageable expenses each month, so if business goes up or down, I am comfortable knowing I can cover my house and car payments.”
Not having to pay on credit card balances has opened up new opportunities for Angela both financially and in life. Now that she’s not paying down the credit card balances, she said taking cash out has given her room to breathe.
“I have no retirement,” she said, “so now I can invest in my home and start saving money for my retirement. And travel!”
Using a cash-out refinance to consolidate debt can be a very good option. Even after the recent uptick, rates for a 30-year fixed-rate mortgage are still in the low- to mid-4% range. If you compare that to even a low-interest credit card where the rate might be 12% or more, taking equity from your home to pay off other debts may be very attractive. You pay much less in interest over time.
Reinvesting Your Equity
One of the big things you can do is take cash out of your home and reinvest it elsewhere. You’re really only limited by the scope of your ideas.
In addition to consolidating debt and putting money toward her retirement, Angela is in the process of meeting with contractors to look at some property upgrades.
“I am planning an addition,” she said. “I currently have a three bedroom, one bathroom and want to add a bathroom. However, I may add a bedroom and a master, thereby increasing my value significantly.”
Although Angela was looking to boost her property value, you don’t have to be planning something as big as a room addition in order to benefit from using your equity.
Little things come up all the time that we have to free up funds for. For instance, maybe your furnace has picked the beginning of February to give up the ghost.
Financial services firm PwC conducts an annual financial wellness survey. Nearly half of employees surveyed had less than $50,000 saved for retirement. Furthermore, 43% of employees surveyed think there’s a good chance they’ll have to dip into their retirement funds for non-retirement-related expenses. Taking cash out of your home can be a good way to play catch-up and sock more money away in your 401(k) if you have to.
Many of you are probably planning to send children to college, some sooner rather than later. It’s an unfortunate fact that the average college graduate left campus with more than $37,000 in debt in 2016. That number is up from $35,000 and appears on pace to rise every year. With that in mind, you may be looking for a way to give your college fund a boost. Your home equity can be used to accomplish this as well.
Unlike a home equity loan, a cash-out refinance isn’t a second home loan. Since it’s your primary mortgage, it carries less risk for the lender giving you the money. Because of this, you may be able to get a lower rate.
Does this sound like a loan option you might be interested in? You can check out more information on cash-out refinances and get started online or call (888) 728-4702. We’ll also be happy to answer your questions in the comments.
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