FHA Cash-Out Refinance Costs and Considerations

Debt Consolidation with a Mortgage Refinance: Is It Worth It?

Refinancing your mortgage may give you the option to take cash out, which can be used for any purpose.

If you have high credit card balances or other debts, you might consider using that cash to pay them off. This would consolidate your debts into a single loan—your mortgage—making repayment more manageable and potentially lowering your interest rate.

However, this strategy isn’t right for everyone. Thinking about using a cash-out refinance to consolidate debt? Here’s what to consider.

Key Takeaways:

• A cash-out refinance allows you to access your home equity as cash.

• You can use the funds for any purpose, including debt repayment.

• Combining debts into a cash-out refinance simplifies repayment and may reduce interest costs.

• It’s a smart move if you secure a lower interest rate and stay in the home long enough to recover refinancing costs.

• It may not be beneficial if you plan to move soon or would lose a lower rate on your current mortgage.

Can You Use a Mortgage Refinance to Consolidate Debt?

A cash-out refinance can help you consolidate and pay off debt. Here’s how it works: You take out a new mortgage for more than your current loan balance. The new loan pays off your existing mortgage, and you receive the difference in cash—funds you can then use to pay off other debts.

Here’s a visualization of how consolidating debt with a refinance works: