How can I invest my cash out refinance?
You can reinvest your cash out refinance and you have many options with how you do that. The important thing is to have a plan and working with a mortgage advisor and/or a financial expert to help you outline that plan in order to maximize the impact of these funds.
Simply put, a cash out refinance is the process of swapping your existing mortgage for a larger mortgage and taking the difference in cash. The money you take out can then be used to fund your investments. While mortgage rates and your situation is a moving target, the rule of thumb is that for every $10,000 taken out in cash about $50 is added to your monthly mortgage payment for a 30-year mortgage.
The most usual reasons for a cash out refinance is to invest in updates in the home, pay off debts and debt consolidation and also to pay for an unexpected expense. However, there are many more options than that.
4 Ways to Invest a Cash Out Refi
Paying Off Debt and Debt Consolidation: You can use the funds, from a cash-out refinance, to pay off high-interest debts like credit cards. However, while you enjoy a lower interest rate on your mortgage, your monthly payment might go up in the process.
Finish Your Basement: You can also get a cash-out refinance and use that money to pay for home renovation, like finishing your basement. Finished basements are often highly attractive aspects of a home when selling and can increase your home’s value dramatically.
Add a Home Office: With the pandemic that has affected all of our lives, home office spaces have become crucial. Whether you’re going to sell your home or not, a home office is a highly desirable space and extremely important these days.
Investments: It may not come to mind but you can invest your cash-out money. For example, you may want some extra retirement money. It wouldn’t hurt to save that money for the future. Also, If you have children, you could use the extra cash to start or add to a college fund for your child.
For more information on these cash out refinance uses, click here.
Cash Out Refi Requirements
Although requirements can vary slightly depending on the lender, these are the basic requirements you can expect.
- More than 20% equity in your home
- Debt-to-income (including the new loan) of 43% or less
- Loan-to-value of 80% or less
- A credit score of at least 620
- Verification of your income and employment
- A new appraisal to verify your home’s value