Refinanced your mortgage? 8 things to do with the savings
Mortgage rates are at historic lows and many homeowners have refinanced their home loans to reap serious savings. If you plan to stay in your current home for at least a couple of years, then refinancing your mortgage could make a lot of sense and save you serious money. The key, however, is to not waste those savings. Here are a few good ways to make the most of that cash.
1. Pad your emergency fund
A solid emergency fund can protect you in the event you lose your job and need money to pay your bills, or you encounter an unplanned expense, like a home repair you can't cover with your regular paycheck. Your emergency fund should have enough money to cover a minimum of three months' worth of essential living expenses. If your monthly mortgage payments shrink, it pays to stick some of that cash in the bank and build up a stronger safety net.
2. Pay off existing debt
Your mortgage may not be your only source of debt. If you have a personal loan or credit card balance, the longer you carry it, the more interest you'll pay. But if you're now looking at a lower mortgage payment, you can use your savings to chip away at that debt and knock it out sooner.
3. Contribute to your retirement plan
Steady contributions to an IRA or 401(k) are a good way to help ensure that you're able to live comfortably as a senior. If you've struggled in the past to find room in your budget to fund a retirement plan, use your newfound mortgage savings to build up more of a nest egg.
4. Set aside money to invest with
Though you can, and should, invest your retirement savings, you're also not supposed to touch that money until you're ready to actually retire (in fact, there are penalties involved if you withdraw from a retirement plan too early). On the other hand, if you invest in a traditional brokerage account, you'll have the option to cash out investments as you please and use your profits sooner. And if a lack of money has been a barrier to investing, you can now use your mortgage savings to start buying stocks. Be careful to invest only money you won't need in the short term as the stock market can go down as well as up.
5. Make home improvements
A lot of people can't finance major home renovations without borrowing money. But now you can pool that extra cash and use it to update your bathroom, put in new kitchen counters, or do whatever it is you want to make your home more comfortable.
6. Get ahead of incoming expenses
Maybe your son will need braces next year, or you've promised your daughter she can start music lessons at some point in 2021. These may not be expenses you're grappling with now, but it certainly wouldn't hurt to sock some money away so they're less overwhelming later on. And your mortgage savings could let you do just that.
7. Get a new car
A well-functioning car isn't really a luxury; it's more of a necessity, especially if you live someplace without public transportation. If your car has seen better days, set aside your mortgage savings and use that cash as a down payment on a more reliable vehicle.
8. Invest in a better at-home workspace
A lot of people are working from home these days. If you're one of them, but your "office" is really nothing more than a corner of your kitchen counter, then it may be time to spring for some tools that will let you do your job more efficiently. That could mean buying an actual desk and chair, upgrading to a larger monitor that doesn't hurt your eyes, or investing in a pair of noise-canceling headphones.
Make your savings count
It's always a good thing to lower your expenses, and refinancing is a great way to slash your mortgage payment overnight. Just be sure to make the most of your savings so you really reap your refinancing rewards.
First Midwest Bank is ready to help you achieve financial success. Visit FirstMidwest.com today.