Cash-out refinance to invest?

Real Estate
#1

Hello PFC Fam me and my husband are on track to pay our home off in the next few years. We only owe $75k and initially was going to pay it off this year but decided to allocate funds elsewhere.

Now he tells me he wants to refinance our home to invest in mutual funds and I just can’t wrap my mind around it.

Any thoughts? I’d love to discuss alternatives to him and provide different perspectives because I’m totally against it but he seems to be hell bent on doing it,

It would bring our mortgage up from only $75k to $225k

Please please please I need your help on navigating this conversation with him.

For added context

Oct 2019 we bought it for $338k. We now owe $75k. Initially we were going to pay it off this year but I agreed to just make mortgage payment and use extra money we were throwing at it and just allocate it towards our investments.

I’m not a fan of paying the $1k fee to process it, plus other cost, plus our interest rate will be higher PLUS we will spend more in interest due to a higher balance.

We lose equity in the home. It erases everything we did past 3 years as our balance will be same as it was the day we purchased it.

Plus too many variables with his plan that you can’t count on but what’s real is what we owe.

Nothing outside of our control will change that. If he was doing this to get an immediate cash flow asset it would be a different conversation but to put it in a mutual fund I’m not happy about.

Our home is approximately valued at $460k. 3 years ago we bought it for $338k and now only owe $75k. If we do what he’s suggesting we will owe $225k and he’ll get $150k to put into mutual fund.

I’ve cried over this and his mind seems to be set.

A compromise in my opinion is to simply stop throwing so much money at the mortgage and reallocate it towards the mutual funds.

I need help navigating this conversation with him and sort of seeing a chart of sorts weighing out both options.

Help :cry:

#2

See if he will agree to add more to mutual funds and lwss on paying house off. If you get behind payments become an issue you can back off payments. But if an issue arises and you cant make payments you coule potentially lose the house?

Am I correct in this assumption?

#3

Hello I think I’m a bit confused and don’t understand what you’re recommending

#4

Hi @Liveonlessmel!

As with most things related to personal finance, there is not necessarily a right and wrong answer. A ton of it comes down to personal decisions and determining how much risk you are comfortable taking. Speaking for myself, I would not be in favor of doing what you described. To invest in Index Funds, I would rather find a way to save more money and create a system to consistently invest $X into Index Funds every month.

Historically, the U.S. stock market returns have averaged approximately 10% over the long-term. With mortgage rates being around 5% currently (plus refinance related fees), the difference between what you pay to borrow and what you hope to generate is not that big. AND, historically, the stock market returns can be very volatile. So, even though the long term returns are potentially higher than the interest rate on a mortgage, in the short term anything can happen.

Personal finance conversations between partners can be some of the more delicate matters of a relationship, so I wish you all the best! I hope this helped and keep us posted with any other questions.

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