Without question, the last 2 to 3 months have reminded us that we need to expect the unexpected. Whether it’s that you need to ensure cash reserves in the face of income loss, save for college, retirement protection, investments, or if you have plans of being an entrepreneur, we have tools at our disposal.
For the majority of Americans, our wealth is tied directly to our home. Bear in mind that as we’ve made our monthly payments, we got a return on our investment in the form of equity! Depending on your circumstances, that equity is there for you to use in the form of cash-out refinance. You can use a cash-out refinance as a financial tool. Right now, your plan should be to build up your emergency fund and/or max contribution to a retirement plan. Or replenishing lost retirement savings. Investing in a college savings fund. Or for those that want to take it a step further, investing in the stock market or becoming a real estate investor. Let’s take a closer look at how you can use a cash-out refinance.
Expect The Unexpected
Financial wellness. We think of wellness often in nutrition, foods, and our bodies. However, financial wellness is equally as important. When you plan for the unexpected, you can deal with even the most stressful of events, with solid financial backing.
Remember the equity? Yes, you can use this equity to ensure you are able to meet unexpected moments. Now that the Fed has lowered short-term interest rates, what does this mean for you? Mortgage interest rates are lower. Now that interest rates are lower you can accomplish two goals. First, with a cash-out refinance, refinance your current mortgage to a lower rate and payment, cashflow! Second, use that equity (cash-out) to put a plan and budget in place.
Regardless of your current circumstances, you must strategize to ensure you have a savings plan. There is an old saying “too much month and not enough paycheck!” So how in the world do you save for an emergency? Step one, we spoke about above. Step two, debt consolidation. Consider this scenario for a moment: If you have credit cards and student loans that cost you $800 per month in minimum or slightly above minimum payments. You take those bills, use a cash-out refinance, and cut that in half or more? Guess what, now you are saving about $400 per month for an emergency fund!
Smart money experts recommend having at least 3 – 6 months of necessary living expenses available. Cash, not credit cards. Why? Simple: as one example, in the event of another emergency, you can’t pay your mortgage with a credit card. There is a reason they say “cash is king.” While utilizing two methods – staying at a maximum 30% level on credit card usage per month while also putting money away, you are emergency ready!
Building Retirement Funds
FACT and there is no other way to put it: tax-free money is the best money. In fact, if you are a part of a company that has an employer 401k matching program, then tax-free and free money is the best money! The trick is, you have to be contributing yourself.
As of 2019, the IRS allows you to contribute up to $19,000 per year to your 401(k). If you’re over 50, you’re allowed to contribute anywhere between $1,000 – $6,000 per year if your plan allows for catch-up contributions. The exact limit for these contributions is based on the type of retirement plan you have.
Are you familiar with the “Rule of 72?” It is called the Theory of Compounding Interest. In essence, whatever number you divide into the number 72, is the number of years it will take for your money to double. 12% into 72 means your money doubles every 6 years. Whatever number, as this is for hypothetical purposes. In short, retirement in your 401k or IRA allows your money and interest to compound tax-free. When is the best time to start? Ask a financial advisor, but the answer is right now.
If you’re behind in building retirement funds, taking cash out of your home is a perfect way to ensure you can retire and retire on time! However, do not rely on a cash-out refinance alone. A solid plan, by incorporating elements of the above is critical.
We have dealt with 1000’s and 1000’s of people. There has not been a single person yet that has said; “Yes, I want my kids to be crushed with student loans.” No parent wants that for their children. It is also not something you can save for in just one year.
The cost of college tuition will not go down. In fact, it is one of the fastest rising costs in the US. With that, you need to be ahead of the curve. A cash-out refinance is a perfect solution to begin or fully fund a college education.
These are just a few examples of what a cash-out refinance can do for you and your family. How much equity do you have? What is the right mortgage for you? Will you qualify? Is the time right? Cash-out refinance is a powerful financial tool. One that many people overlook. You may have more equity and resources available to you than you even know. Review this page, see what scenarios you connect with and what makes sense for you.