Now that I have actual equity in my home instead of negative equity, I’m thrilled. I am not interested in selling my Florida home and making a profit. I’m not interested in taking out a home equity line of credit so I can update my kitchen. I am researching the possibility of a cash-out refinance so that I can use the cash as a down payment on an investment property. According to a recent article by the Los Angeles Times, I’m not the first person to have that idea. The article claims cash-out refinances are coming back into popularity. In the past, most people I knew wanted cash so they could spend the money frivolous things. The article points out that now cash from the cash-out refinances are being used for “saner purposes.” Quicken Loans reports a quarter of new refinances are the cash-out kind. Lenders allow borrowers to take out loans for an amount that is greater than the cost of the mortgage.
Using our house like a piggy bank
In some ways we used our house like a piggy bank. It seemed like a good idea to pay down our mortgage instead of putting money aside in a savings account. I don’t regret that we paid down our mortgage because we have a small balance. Since our home was appraised for about $190,000, we qualified for a cash-out refinance. We owe about $90,000 on our current mortgage. We don’t plan to opt for a new fixed-rate mortgage of more than $150,000, which would give us about $50,000 of cash at closing.
Jumping on real estate opportunities
If we had a lot of credit-card and student loan debt, we could use the cash to pay off debt. In our case, we want to have the 20 percent down needed to purchase a real estate investment property. To buy a short sale, we need about $20,000 as well as money for closing costs. The remaining money will be used to fix up the property that we will rent out. According to the Los Angeles Times article, consolidating debt is one of the reasons many people choose a cash-out refinance. But some people are choosing it to fund the purchase of a rental property.
Switching to a 30-year loan
Instead of staying with our 15-year fixed rate mortgage, we plan to lower our payment by switching to a 30 year term. With a lower payment on our primary residence, we will have the extra cash in case our renter doesn’t make a payment. Even with a cash-out refinance and the purchase of an investment property, we will only be spending about $1,300 a month, which is how much we used to pay for our mortgage when we had our original 30-year mortgage at a higher interest rate about 10 years ago.
I never would have taken the chance to buy an investment property when I was in my 20s and 30s. But as the bull stock market winds down, I know it won’t be as easy to grow my retirement investments. Meanwhile, the cost of rent continues to go up. I can provide a service by renting out a home at a reasonable cost. By the time I’m 70, I’ll have two paid-off homes. I can live in one home mortgage free. The money I collect from the rental will boost my retirement income whether the stock market is up or down.
More from this contributor:
Paying off My Mortgage Isn’t Stupid
Even Good Debt Has Been Bad For Me
As a Homeowner I’m Wealthier, but Not Happier