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You can withdraw equity from your home for virtually any purpose, including to invest. But is it a good idea to risk your home for investments? (Shutterstock)
If you’ve been in your house for a while, you likely have built up some equity — the difference between what you still owe on your current mortgage and your home’s value. You can use equity for practically anything, including funding stock purchases or other investments.
When the stock market is doing well and mortgage interest rates are low, you may wonder if refinancing and pulling the equity out of your home to invest in stocks is a wise choice. Investing can pay off, but it’s also inherently risky.
So, when is a cash-out refinance to fund your investments a good strategy, and when is it a mistake? Let’s look at things to consider.
Credible makes it easy to compare mortgage refinance rates from multiple lenders.
What’s a cash-out refinance, and how does it work?
Cash-out refinancing turns the equity you have in your home into cash. It replaces your existing mortgage loan with a new one for a larger amount than what you currently owe, and lets you pocket the difference between the two balances in cash — less any closing costs.
A cash-out refinance has two main benefits. It turns the equity you have in your home into cash, and your new mortgage loan could come with a lower interest rate, a lower monthly payment or possibly both.
Withdrawing home equity to invest
In the second quarter of 2021, 51% of homeowners chose a cash-out refinance, up from 38% during the first quarter of 2021, according to a Freddie Mac report. When you withdraw the equity built up in your home, you can use it for anything you want.
You can use the extra cash to pay for an unexpected emergency, pay down debt or fund home improvements to add value to your home. You can put the cash toward starting a new business or buying a second home. You can even buy stocks with the proceeds from your cash-out refinance.
Using equity to buy stocks
More than half of all households have some …….
Source: https://www.foxbusiness.com/personal-finance/cash-out-refinance-to-invest
