US Stocks: Investing Tips After the Standard & Poor's Downgrade ABC News
After one of the worst days on Wall Street in recent memory, there is a great deal of talk about international credit, bond yields and defaults and ratings. The burning questions on many people's minds seem to be: what does that mean for your investments?
Financial planners say not to panic, but now is the time to take a hard look at your portfolio.
Should I sell? No -- but maybe you should buy.
Ted Schwartz, the president of Capstone Investment and an investment adviser in Colorado Springs, Colo., cautions investors not to sell "partly because of the lack of liquidity right now."
"Anything you are going to sell you are putting on a fire sale right now. Even if you decide you want to become more conservative in your investments, you might need to have a gradual approach to that, rather than dumping everything that has risk on it right away," Schwartz said.
David McPherson, a financial planner with Four Ponds Financial in Falmouth, Mass., cautioned investors to stay calm and emphasized that everyone should have a balanced portfolio that already compensates for tumultuous times with a healthy mix of bonds and stocks.
What is a Cash Out Refinance?
One type of refinance which is very popular for today’s mortgage holders is the “cash out” refinance, in which the borrower taps into the equity of the home to obtain cash. While not all lenders offer this type of refinance option, it is very useful for some borrowers who need access to cash for educational or medical needs, or wish to pay off high-interest bills.
Basically, a cash-out refinance allows the borrower to refinance more than the current principal balance of the mortgage and take the remainder of the loan in cash. There are variations on the way this type of loan is administered, but generally the money received is designated for a certain purpose.
What can I use the cash out for?
Some people utilize the cash-out refinance mortgage to pay off high-interest bills. By using the equity built in the home to pay off credit cards and other debts, the borrower can significantly lower his or her overall interest rate and keep monthly payments low.
Is it a good idea to cash out some of my home equity?
While this seems a good plan in theory, there are dangerous pitfalls to this approach. Many people borrow money on their mortgage to pay off high-interest credit cards, only to run the balances up on those same cards again. This causes them to have the high-interest debt along with a higher balance on their mortgage, which can lead to financial ruin. If you opt for a cash-out mortgage to pay off credit cards or other debts, the safest way to ensure that you do not run up your other debts again is to close those accounts.
Another purpose of the cash-out mortgage refinance is to provide cash for educational or medical expenses. These types of expenses can easily mount into thousands of dollars, so sometimes tapping the equity in the home is the easiest way to pay for them. However, there are other options for financing education, such as low-interest student loans, and many medical expenses can be negotiated or even written off if the income level of the patient is sufficiently low. Be sure to explore other options before you consider a cash-out refinance to pay for expensive educational or medical bills.
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