5 Smart Ways to Use Cash-Out Refinance Money

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Cash-out refinances are a great way to access money easily and quickly. The strategy essentially replaces your existing mortgage with a new loan — one that’s bigger, pays off your old one, and gives you cash based on the equity you have in the home. (If you’ve lived there a while, that could be a LOT!)

And though money from cash-out refinances can technically be used for anything, if you really want to get the most for your dollar (and maybe even earn more cash on top of that), then it may be best to use your funds on one of these five expenses:

  • To improve your home. Whether it’s making repairs, renovating the kitchen, or adding a deck, the right home improvement project can actually boost the value of your home. In the end, that could mean more for the property when it comes time to sell. (Just make sure you choose the right projects if you go this route! Not all renovations are created equal.)
  • Investments. Putting some of that cash into stocks, bonds, or other financial investments can also be a great way to ensure an ROI on your refinance. You might even consider investing in a rental or vacation property. By finding a full-time tenant or listing the home on a short-term rental site (VRBO, Airbnb), you can add a consistent stream of income to your household.
  • Education. You can use your cash-out refi money to pay for your child’s college tuition or, if you really want to see returns, invest in furthering your own learning instead. An advanced degree or training program could help you earn more income in years to come.
  • Pay off high-interest debts. Have lots of credit card debt? A big car loan? If your refinanced rate is lower than the interest rate on those accounts, then you can save lots by putting cash toward those higher-interest balances. Bonus points: Paying off those accounts will probably help your credit score, too!
  • Start an emergency fund. If one hospital stay or major home repair could drain your savings, then it’s probably wise to put some of your refinance cash toward an emergency fund. This will help protect you in case something unexpected happens — and it will ensure you don’t have to open a high-interest credit account (or worse, have your newfound expense sent to collections when you can’t pay it).

Want to leverage the equity you have in your home to make smart investments in your future? Then contact a loan officer at Embrace today.

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Aly Yale

Aly J. Yale is a freelance writer focusing on real estate, mortgage, and the housing market. Her work has been featured in Forbes, Bankrate, The Motley Fool, Business Insider, The Balance, and more. Prior to freelancing, she served as an editor and reporter for The Dallas Morning News. She graduated from Texas Christian University's Bob Schieffer College of Communication with a major in radio-TV-film and news-editorial journalism. Connect with her at AlyJYale.com or on Twitter at @AlyJwriter.