In the era of COVID-19, we’re all worried about the health of our wallets. All over the world, folks' livelihoods are being put under immense pressure. Business owners and employees alike are struggling to make ends meet and for anyone who isn’t struggling, your wallet’s health still remains top of mind. You can hardly ignore a current world climate and not become introspective of your own practices that might, in the event that the worst should happen and you lose your job, make the difference between losing what you’ve built or keeping it.
There’s been a rise in interest across the board for financial improvements and how to make a more secure, safe nest egg for yourself and your loved ones. Some people have started looking to the refinance process as a way to lower monthly mortgage payments and save money potentially both in the short and long term.
However, any financial strategy based in financial well-being surrounding refinance begs a couple of important questions. You’ll need to evaluate the loan term you desire, the interest rate you’re capable of acquiring and whether or not you want to take a little extra cash out of your equity to put somewhere that might be potentially more advantageous.
Here at Lending Studios, we believe a properly constructed strategy surrounding a cash-out refinance can be great for the long term and short term health of your wallet. Learn more now.
Cash-out refinancing has been around forever, and like any financial option that’s been available for some time, it has a track record of being used inefficiently and efficiently. Cash-out refinances actually went out of style during the recession for a variety of reasons, the main one being fear. In a recession, people fear losing everything they have and fear causes in-action. However, this hesitation from the past shouldn’t advise your current day decisions. It’s a different economic climate and your financial needs are different than those folks who weathered that economy and that time period. Many people are looking to cash-out refinancing as a way to help them feel a little more financially stable and successful.
Cash-out refinance is growing more popular because many people are seeing a precipitous rise in home values. Tie that together with record high equity and falling interest rates and you have a mixture that’s primed for some lucrative cash-out refinancing strategies. When you’re doing the simple math of whether or not a refinance will be worth the fees and time you spend, you may want to factor in whether or not it’s a good idea to take out a little of that equity while you’re at it.
Since December 2019, cash-out refinances have seen a 24% increase and now make up half of all refinance loans. That’s because many homeowners can access a huge sum of money from their equity without even touching the 80% loan-to-value ratio. These data points should prompt you to question just why cash-out refinances are such a popular idea.
Borrowing a large sum of cash at a low interest rate is always in style. It’s simply been opened up in a more meaningful way now that the housing market has come back and interest rates are at historic lows. Any large sum of cash is good for your wallet, but when it’s paying off and relieving stresses on your wallet, it’s even better.
If you’re looking to keep a little more of your monthly paycheck, using your cash-out refinance funds can bolster your retirement savings. Instead of having 6% or more of your paycheck funnel directly into your retirement, you could, instead, funnel that money into a different investment. For example, if you’re saving up for another rental property, an engagement ring, or something similar, you can satisfy your yearly retirement savings with the cash from your cash-out refinance instead. If you intend on doing this to make your retirement fund more flexible and lucrative, you’ll want to ensure that you’re still contributing to your retirement to ensure that you get the match from your employer. Past that, use your cash-out refinance to max out your retirement savings contribution for this year in as many different contributions as you have available.
Once you have more money invested, it can start to accrue more quickly than ever before.
If you’re thinking about other ways to invest money and acquire a form of passive income, you could do worse than using your cash equity for a down payment on a new rental property. They may be quite a bit of work, but with the real estate market gaining value so quickly, they could be a great way to use your money for an investment. While you should note that you’ll need 20% down at least to secure the property, and you’ll likely be paying a higher interest rate on the property than you are on your current residence, it’s still a worthwhile investment and is a great way of building up a passive income for retirement.
If you’re comfortable taking 20% for a down payment on a rental home out of your existing equity and the idea of one more monthly house payment isn’t daunting, then it’s a great place to start investing in the physical property.
Tired of how your home looks and functions anymore? You could do worse than using your cash-out refinance money for an upgrade or two for your home. Whether you’re looking to refurbish your bathroom or overhaul the kitchen, upgrades add value to a home and increase your love of the place. Plus, any renovations you make could pay off in the long run and it ensures that the money you might have been saving towards a far off future renovation can be used for some other purpose.
One of the most common uses of the money a cash-out refinance produces is to consolidate debt. You can use the money to pay off credit card debt, student loan debt, and any other debt you’re from which you are suffering. It’ll simplify the process because, even though you’ll still be paying that money back, you’ll only have to do so through a single bill rather than multiples. It also ensures that you’re paying a much lower interest rate on the rest of the money you owe. With interest rates as high as 24% for some credit cards, transferring that debt to your mortgage payment where the interest rate could be as low as or lower than 3% will give your wallet some real breathing room.
Ready to start exploring your refinancing options? Reach out to Lending Studios today to schedule a consultation. We’re happy to help you find a good fit for you and your financial future.