Refinancing your home can be a great way to raise money for new investments. Use the refi process to maximize your future cash flow without stretching your budget.
Most homes hold thousands of dollars of equity just waiting to be unlocked in refinance. Many homeowners look at their home equity as a safety net or even a second retirement fund. Making the decision to refinance your home and extract this value can have significant implication on your financial future. So how do you manage the refi?
The Right Time to Refinance Your Home
Rates are near historical lows and appear to be creeping upward. Unfortunately there is no way to predict future rates, so attempting to time your refi will inevitably leave you drawing at straws. A better idea is to refinance when you have an opportunity to invest the money in a better vehicle than your home.
Do not mistake this for market timing. If you get an opportunity to buy an additional home or if you have always wanted to invest in a business, a home equity loan might be a low-risk financing alternative.
Refinance with a Plan
Never take money out of your home without a cohesive plan for the funds. This plan should go beyond vacations, new cars, or furniture. While there is nothing wrong with having a little bit of fun, remember your home is your biggest investment. As such, your plan should incorporate an investment strategy.
Home equity loans provide great capital for down payments on rental properties, start up funds for an entrepreneurial venture, or investments in the stock market. Keep in mind when you take equity out of your home, you are essentially increasing your debt. This is not entirely bad because the interest is tax deductible, leaving you with a pretty low cost of borrowing. This does, however, make having an investment plan important.
