We are an independent, advertising-supported comparison service. Our goal is to help you make smarter financial decisions by providing you with interactive tools and financial calculators, publishing original and objective content, by enabling you to conduct research and compare information for free – so that you can make financial decisions with confidence.
Bankrate has partnerships with issuers including, but not limited to, American Express, Bank of America, Capital One, Chase, Citi and Discover.
The offers that appear on this site are from companies that compensate us. This compensation may impact how and where products appear on this site, including, for example, the order in which they may appear within the listing categories. But this compensation does not influence the information we publish, or the reviews that you see on this site. We do not include the universe of companies or financial offers that may be available to you.
Financing a home purchase
Refinancing your existing loan
Finding the right lender
Additional Resources
Elevate your Bankrate experience
Get insider access to our best financial tools and content
Compare Accounts
Use calculators
Get advice
Bank reviews
Elevate your Bankrate experience
Get insider access to our best financial tools and content
Compare by category
Compare by credit needed
Compare by issuer
Get advice
Looking for the perfect credit card?
Narrow your search with CardMatch™
Personal Loans
Student Loans
Auto Loans
Loan calculators
Elevate your Bankrate experience
Get insider access to our best financial tools and content
Best of
Brokerages and robo-advisors
Learn the basics
Additional resources
Elevate your Bankrate experience
Get insider access to our best financial tools and content
Get the best rates
Lender reviews
Use calculators
Knowledge base
Elevate your Bankrate experience
Get insider access to our best financial tools and content
Selling a home
Buying a home
Finding the right agent
Additional resources
Elevate your Bankrate experience
Get insider access to our best financial tools and content
Car insurance
Homeowners insurance
Other insurance
Company reviews
Elevate your Bankrate experience
Get insider access to our best financial tools and content
Retirement plans & accounts
Learn the basics
Retirement calculators
Additional resources
Elevate your Bankrate experience
Get insider access to our best financial tools and content
We are an independent, advertising-supported comparison service. Our goal is to help you make smarter financial decisions by providing you with interactive tools and financial calculators, publishing original and objective content, by enabling you to conduct research and compare information for free – so that you can make financial decisions with confidence.
Bankrate has partnerships with issuers including, but not limited to, American Express, Bank of America, Capital One, Chase, Citi and Discover.
The offers that appear on this site are from companies that compensate us. This compensation may impact how and where products appear on this site, including, for example, the order in which they may appear within the listing categories. But this compensation does not influence the information we publish, or the reviews that you see on this site. We do not include the universe of companies or financial offers that may be available to you.
While we adhere to strict , this post may contain references to products from our partners. Here’s an explanation for .
Founded in 1976, Bankrate has a long track record of helping people make smart financial choices. We’ve maintained this reputation for over four decades by demystifying the financial decision-making process and giving people confidence in which actions to take next.
Bankrate follows a strict editorial policy, so you can trust that we’re putting your interests first. All of our content is authored by highly qualified professionals and edited by subject matter experts, who ensure everything we publish is objective, accurate and trustworthy.
Our mortgage reporters and editors focus on the points consumers care about most — the latest rates, the best lenders, navigating the homebuying process, refinancing your mortgage and more — so you can feel confident when you make decisions as a homebuyer and a homeowner.
Bankrate follows a strict editorial policy, so you can trust that we’re putting your interests first. Our award-winning editors and reporters create honest and accurate content to help you make the right financial decisions.
We value your trust. Our mission is to provide readers with accurate and unbiased information, and we have editorial standards in place to ensure that happens. Our editors and reporters thoroughly fact-check editorial content to ensure the information you’re reading is accurate. We maintain a firewall between our advertisers and our editorial team. Our editorial team does not receive direct compensation from our advertisers.
Bankrate’s editorial team writes on behalf of YOU – the reader. Our goal is to give you the best advice to help you make smart personal finance decisions. We follow strict guidelines to ensure that our editorial content is not influenced by advertisers. Our editorial team receives no direct compensation from advertisers, and our content is thoroughly fact-checked to ensure accuracy. So, whether you’re reading an article or a review, you can trust that you’re getting credible and dependable information.
You have money questions. Bankrate has answers. Our experts have been helping you master your money for over four decades. We continually strive to provide consumers with the expert advice and tools needed to succeed throughout life’s financial journey.
Bankrate follows a strict editorial policy, so you can trust that our content is honest and accurate. Our award-winning editors and reporters create honest and accurate content to help you make the right financial decisions. The content created by our editorial staff is objective, factual, and not influenced by our advertisers.
We’re transparent about how we are able to bring quality content, competitive rates, and useful tools to you by explaining how we make money.
Bankrate.com is an independent, advertising-supported publisher and comparison service. We are compensated in exchange for placement of sponsored products and, services, or by you clicking on certain links posted on our site. Therefore, this compensation may impact how, where and in what order products appear within listing categories. Other factors, such as our own proprietary website rules and whether a product is offered in your area or at your self-selected credit score range can also impact how and where products appear on this site. While we strive to provide a wide range offers, Bankrate does not include information about every financial or credit product or service.
Coverage.com, LLC is a licensed insurance producer (NPN: 19966249). Coverage.com services are only available in states where it is licensed. Coverage.com may not offer insurance coverage in all states or scenarios. All insurance products are governed by the terms in the applicable insurance policy, and all related decisions (such as approval for coverage, premiums, commissions and fees) and policy obligations are the sole responsibility of the underwriting insurer. The information on this site does not modify any insurance policy terms in any way.
Chances are you’ve built up a lot of equity in your home over the past few years, thanks to rising home values and the fact that you’ve been paying down your mortgage balance. You can tap into this equity in the form of a cash-out mortgage refinance. The cash you take out at closing can be used for virtually anything you want – even investing in the stock market.
The appeal is clear: The basket of stocks that make up the S&P 500 rose nearly 27 percent in 2021 (the average return on that index has been about 10 percent a year over long periods), while mortgage rates averaged 3.28 percent in Bankrate’s latest survey. The idea is that savvy homeowners can tap their home equity and reap investment gains that outpace their mortgage interest — and therefore grow wealthier over time.
But this may not be the best use of your cash-out equity. Making Wall Street investments can be risky, and it can take a while to recoup the costs involved with refinancing. Weigh the advantages and disadvantages carefully and determine if this tactic is right for you and your needs.
The good news is that you can use the cash you take out at closing during a refi for just about anything you want, from funding a home improvement project or paying down outstanding high-interest debt to covering the cost of a wedding or college tuition.
“You are allowed to use your cash-out refinance money for whatever you like. Typically, people will use the cash for home repairs and improvements, but you don’t have to,” says Nate Tsang, founder and CEO of WallStreetZen. “Just because the money is coming from your home’s value doesn’t mean it needs to stay there.”
There are also no restrictions on doing a , if you’ve built up significant equity in your home, and then turn around and invest those funds in the stock market, according to Daniel Milan, managing partner at Cornerstone Financial Services in Southfield, Michigan.
“You merely complete a cash-out refinance with the lender of your choosing and then, after receiving the cash, you can transfer it to a brokerage account and invest accordingly as you so desire,” Milan says.
As with any financial endeavor, there are pluses and minuses to ponder. Consider the possible benefits carefully.
“First, the advantages of funding stock market investing via a cash-out refinance are multiple. You’ll likely lock-in the funding at a lower rate of interest, since interest rates on secured mortgage loans are relatively lower than for any unsecured loan,” says Lyle Solomon, a financial expert and principal attorney with Oak View Law Group in Rocklin, California. “Also, the money you get from a cash-out refi is not taxable, since it’s not considered as income.”
Additionally, with a cash-out refi, you can get access to your money within weeks and then begin turning that into long-term profit through investing, if your returns are favorable.
“And the returns you’ll see can be greater than the value you’d gain from your home’s appreciation if you had not pursued a cash-out refinance,” Tsang adds.
The biggest downside to using liquid funds from a cash-out mortgage refinance to invest in the stock market is that the stocks, funds or other investment vehicles you choose can decrease in value.
“There is no guarantee of getting a positive return when you invest in the stock market. You can lose money and you’ll still have to repay the mortgage loan, too,” cautions Solomon.
Also, closing costs can average 2 percent to 5 percent of your amount borrowed, which can add up to thousands. This can be the equivalent of paying a 2 percent to 5 percent load on a mutual fund, which would be unacceptable to many investors today.
In addition, completing a refinance can take up to two months.
“While devoting this time, the stock market may take a downward turn and not look as attractive anymore,” Solomon says.
What’s more, you’ll increase your risk of foreclosure when taking out more debt on your home.
“This debt has to be paid off with your existing cash flow, and if that cash flow goes away – say by losing your job – you stand a greater chance of losing your property,” says R.J. Weiss, a Geneva, Illinois-based certified financial planner and founder of the personal-finance site The Ways to Wealth. “Combine this scenario with a market decline and you could end up losing your home and seeing your portfolio drop by 30 percent or more.”
As if those weren’t enough good reasons to avoid this strategy, consider that stocks are currently at record high valuations.
“If you were to invest your entire cash-out refinance proceeds in the stock market, there is a high likelihood that you could see a major decline in your investment if and when there is a market correction,” Weiss says.
Nick Bormann, an investment advisor representative and managing member at Bormann Wealth Management seconds those sentiments.
“For this strategy to work, your return from the stock market would have to be higher than the additional interest you will pay as a result of pulling out your home equity and possibly extending your mortgage, plus the closing costs involved,” says Bormann.
Solomon says you should fit several criteria to be a worthy candidate for investing in the stock market, including:
“Additionally, you must be able to afford the potential increase in your monthly mortgage payments,” adds Milan. “Those who cannot should probably not pursue a cash-out refinance to invest in stocks.”
Instead of putting your home at risk in the event you default on your loan, a better option might be to make stock market investments using your savings.
“By doing so, you won’t put a burden on your household budget to repay the mortgage loan, and you will lower your stress level,” says Solomon.
An alternative approach is to pursue a cash-out refi but use the cash at closing to pay off high-interest debt.
“Then, using the excess cash flow gained from the lower interest rates, maximize your tax-advantaged investment accounts while dollar-cost averaging into the market,” Weiss says.
Or, consider refinancing at a lower rate but without cashing out any equity.
“Then, invest the monthly difference between your old payment and new payment into an investment account,” Milan says.
Regardless of how you plan to pay for stock market investments, aim first to save for retirement, and always make sure you have an emergency fund set aside, Solomon advises.
If you are determined to put your money into the stock market, it’s essential to choose wise investments based on several criteria, including your age, projected retirement date, risk tolerance and other factors.
“While investing in stocks, mutual funds, or any other chosen investments, make sure you build a sound investment portfolio,” says Solomon, who suggests working with a skilled investment advisor. “I recommend selecting low as well as high-risk investments. By doing so, you can get high returns and reduce the risk of losing your entire invested amount.”
Bankrate.com is an independent, advertising-supported publisher and comparison service. Bankrate is compensated in exchange for featured placement of sponsored products and services, or your clicking on links posted on this website. This compensation may impact how, where and in what order products appear. Bankrate.com does not include all companies or all available products.
Bankrate, LLC NMLS ID# 1427381 | NMLS Consumer Access
BR Tech Services, Inc. NMLS ID #1743443 | NMLS Consumer Access
© 2022 Bankrate, LLC. A Red Ventures company. All Rights Reserved.
About Author
