1. What is a cash out refinance?
A cash out refinance is when you take out a new home loan for more money than you owe on your current loan and receive the difference in cash. It allows you to tap into the equity in your home. Cash out refinancing makes sense:
- When you have the opportunity to use the equity in your home to consolidate other debt and reduce your total payments each month
- To pay for the cost of improvements that increase the value of your home
- When you are unable to get other financing for a large purchase or investment, or if the cost of other financing is more expensive than the rate you can get on a cash out refinance.
2. How can I consolidate debt with a refinance?
With a cash out refinance, you can use the cash to pay down higher interest debt. You will still owe the same amount of total debt when all is said and done, but you will have swapped out high-interest debt for the lower interest rate on your new home loan. This can save you a lot of money in monthly interest payments. In many cases, you will also get the added benefit of deducting these interest payments from your taxes (consult your tax advisor for details). Use our Cash Out Refinance Calculator to see how you can consolidate your debt through a cash out refinance.