It’s been a tumultuous time, the past few months. Heck, even years. But amidst the global economic volatility we’ve all experienced recently, there’s been one silver lining no one can deny: a home equity boom the likes of which we haven’t seen in decades. And with interest rates in their dying days of historic lows, mortgage experts have reached a consensus: the time to strike cash-out refinance gold is right now.
Bankrate, along with other mortgage data watchdogs, has tracked rising home values throughout the past twelve months and beyond. And with many homeowners continuing to pay down the principal on their mortgage balances, home equity has hit a collective all time high.
Which means one thing for homeowners looking to capitalize on their position: flipping their cash-out refinances into high-yield stocks to maximize ROI (return on investment). Here’s how some of the most savvy investors around the world are making it happen…
The S&P Is on the Rise
2021 saw the S&P 500 jump by almost 27%, representing a massive increase over the average return of the index, which has clocked in at right around 10% over past years. At the same time, mortgage rates have held steady at an average of 3.28%.
Crunching these numbers tells us one thing: stock gains currently have the ability to outpace mortgage interest payments, allowing homeowners investing in the right stocks to build wealth by investing cash-out refi proceeds into safe bets on the stock market.
The key word here is “safe,” which, full disclosure, is a bit easier said than done. Wall Street bets are tricky, and risky, and if you’re not extremely careful, the wrong investment can result in significant loss. Before making any significant investment, we always recommend that you speak with a qualified financial advisor who can point you in the right direction and help keep your assets safe.
When You Know the Risks, but You’re Ready to Invest Anyway
First off, it’s important to understand the rules when it comes to using cash-out refinance proceeds to invest in the stock market. Fortunately for us Americans, we live in a free country where you’re completely allowed to use your cash-out monies for pretty much anything you darn well please.
That can be anything from home improvements or renovations to consolidating debt, to covering a major event’s expense such as a wedding, or kid’s college tuition, going on that dream vacation it feels like you’ve been putting off forever, or even investing in an income generating rental property or, you guessed it, stocks!
As the CEO and founder of WallStreetZen, Nate Tsang, puts it, “You are allowed to use your cash-out refinance money for whatever you like. Typically, people will use the cash for home repairs and improvements, but you don’t have to. Just because the money is coming from your home’s value doesn’t mean it needs to stay there.”
Get the Cash, Transfer to Your Brokerage Account, and Go to Town
At the end of the day, you’re in the driver’s seat when it comes to how you decide to use your cash-out refi proceeds. Rates hovering around 2% are still available, but the clock may be ticking on that, as most mortgage market experts are projecting major rate hikes through 2022.
No matter what you decide to do with your cash-out refinance, you’ll want to consider the pros and cons in great detail. When it comes to investing the money into the stock market, Oak View Law Group’s principal attorney and noted financial expert, Lyle Solomon, had this to say: “The advantages of funding stock market investing via a cash-out refinance are multiple. You’ll likely lock-in the funding at a lower rate of interest, since interest rates on secured mortgage loans are relatively lower than for any unsecured loan. Also, the money you get from a cash-out refi is not taxable, since it’s not considered as income.”
Cash-out refinances allow you access to your home equity money within a few short weeks. If you invest in the right stocks, the ROI can be substantial. Even more substantial than the gains you might see from your property value appreciation over the same time period.
But you need to exercise caution here. Stocks can be very unpredictable, and investing your liquid funds you built up over years in the form of home equity into the stock market, can result in losses. The good news is you don’t have to invest in stocks at all if you don’t want to: you can cash-out refinance right now, and see if you’re eligible for a rate of 2% or even less, within minutes. And it just might be the most financially savvy move you make all year, leaving you laughing all the way to the bank.