Is Using a Cash-Out Refinance to Invest a Good Idea?

Is Using a Cash-Out Refinance to Invest a Good Idea?

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[andykuzman]

I’d be retiring or working less in 5 years, curious to know how best people split their pay, how much of it goes into savings, spendings or investments, I earn around $250K per year but nothing to show for it yet

[nicholasmartinez]

I’m 35 with a paid off house. I don’t regret it one bit because it allows me to stay nearly 100 percent invested in stocks. Essentially, I used the percentage of my savings that would of been for bond allocation in a target fund and paid that towards my mortgage that was 4.25 percent (mortgage from 2010)

With no debt I feel like I can weather a 50 percent stock downturn with way less risk, thus keeping me more stable on the roller coaster instead of jumping off mid ride to pay a mortgage

[ryanr]

2 years ago, maybe when interest was low and the dividend yield of a diversified dividend ETF beat the APR of the home, maybe.

[CalmerThanYouAre]

Would you give the same advice if mortgage rates were 3%…?

[TheFirstRealChewy]

If I had a paid off home at 32 I'd be dancing. I'd be able to invest more while keeping my expenses low.

[theadamblock]

The money guy show has a know your number course. If you have a mortgage and don't have enough invested to get to your retirement number when you want to do so then you need to prioritize kicking up the monthly contributions to your investments. 👍🏻

[Luckyaau]

It depends:
--if you have a low, fixed-rate mortgage (<4%),
--and if you will have at least 30% equity in the home (after you pull the money out, more if you're older),
--and if you will have the home paid off by the time you're 70,
--and if you don't plan on moving any time soon (so you can ride out a real estate drop),
--and if you can afford the extra cost of the mortgage,
--and if you're still investing 20-25% of your gross income,
--and if you choose to invest in a diversified index fund(s) (i.e., SPTM),
--and if you can stomach the additional risk (the investments can go down and stay down for several years and there's a greater chance of going underwater on your home),
--and if your spouse is on board with the idea,

then yes, I think it's a great idea. If you can say yes to all of that, I would do it (if you want to).

I could, and I did, twice. But, if you looked at my numbers, not many of you would be worried (or would even had known). I was fortunate with my primary residence coming out of the great recession and was overweight in home equity compared to my retirement and after-tax investments:
age: late thirties
30-yr fixed mortgage at 2.875% with 62% LTV
PITI payment to income: 15.1% (banks like to see less than 28%)
additional funds in my taxable brokerage account after 4 years: $290k ($220k pulled out, $70k appreciation on investments)

[saulgoodman]

NO. Not paying off your house early, is not the same as taking out a loan to invest.

[anniealexander]

Fifth third has a heloc that allows you to lock and unlock rates. There are no closing cost. The first year is free to have the account. After the first year, it's $65 a year. It has a 10 year draw and 20 year pay back period.

I was looking at a brick home in Anniston Alabama. It's brick with an elderly tenant who has been in the home for 22 years. The owner is at $45k. If he would have dropped to $40k, it would have been a done deal. The tenant is paying way under priced rent. $500 and it should be $800 to $900.

The account is good for emergency. My son just sprang a tax bill on me. $2500 total. I borrowed $1100 out of the account. So far, my interest is $1.78. So much cheaper than a credit card and I don't have to pull from my brokerage accounts.

This account is great for people who are debt free and can pay back money quickly.

[chadgriffith]

Refi, that’s a ton of dead equity! Go buy 4 rentals with that refi cash and do the math, 4x that equity. Keep plenty in reserves for that end of world scenario.

[kckuc]

What a stupid question, risk, risk, risk people don’t know about risk. Invest that money that was going toward the mortgage going forward

[tourist]

He didn't answer the question. Unsubed

[sasukesuite]

Mortgages run the admittedly slim but non-zero chance of a bank calling in your entire loan, especially amid a banking crisis. Happened to both Dave Ramsey and Grant Cardone. Both overleveraged on mortgages, banks called in their loans, both went bankrupt.