Make sure your insurances are all paid up before considering a remortgage loan. Consider the worst case scenario. Before you take out a remortgage loan, think what would happen if on the day you did, you lost your job, crashed your car out of anger, your dog got killed because he wasn’t wearing a seat belt, and you got whiplash because you were. And you, of course, have to pay for all of this.
You should be able to do that without touching your remortgage loan money. Don’t take out a loan to make that money your emergency fund, either, or to invest in any venture less safe than real estate, ie, individual securities in the stock market.
Decide whether you are putting your remortgage loan to net worth or income. After you make sure your investment head is in the right place, you must consider what you want.
Residual income, or net worth increase?
Investing a remortgage loan for either of those two purposes is vastly different. If you want to invest for residual income, make sure that the refinanced payments come in lower than the new residual payments you’ll be receiving. If you want to increase net worth, make sure you can take the short term hit to your income.
Age is also a factor here. The older you are, the more you should lean towards residual income. Financial planning is essential to decide if you need a remortgage loan.
After you decide on an income or net worth focus, and your plan, you must consider the market for the next medium term period. Was there a lot of governmental spending lately? What’s inflation going to look like?
Get with 2 financial planners (one for a second opinion) and ask him to put together a picture of the next 10 years for you. Tell him or her you want nominal numbers, meaning numbers including inflation.
Invest your remortgage loan into the best business of a depressed market.
If your plan is set, and the market looks good, the last step is to invest your remortgage loan in the most undervalued asset possible. There are several ways to tell undervalued assets, but the easiest is to find out of favor industries with good businesses.
Overall market prices will drive down the entrance fees to good businesses from time to time. This is the time you want to invest in.
