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Question for the Money Doctors

Question submitted on Jan 11, 2022.

Question

I would like to refinance my home and take some cash out to invest. What is the best program/lender/service to use for this?

Answer

While refinancing a mortgage to improve your home would be a wise use of the mortgage proceeds, sometimes investors can use “equity stripping” from their home to generate additional proceeds to invest.  If the interest rate paid on the mortgage is lower than the long-term rate of return on the investment(s) made, the spread can potentially generate positive gains in an investor’s net worth.  Also, the interest on a home mortgage is only tax-deductible for improvements and/or purchase of the principal residence.  However, the interest could possibly be deducted from taxable investment gains as long as they are deemed to be ordinary income and the taxpayer can itemize their deductions.

Many local banks and credit unions offer competitive interest rates that are published on their websites.  You can start with your current mortgage company to see what they could offer you.  Note that interest rates drop when you shorten your term loan.  If you are able to afford it, consider maintaining the same length or shorter of your current mortgage.  Also, long-term interest rates are still at historical lows if you are able to lock in a fixed-rate mortgage for 20-30 years.

 Best wishes with your refinancing.


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