Feeling overwhelmed by your high-interest debt? A cash-out refinance can be an effective way to consolidate your high-interest debt. At its core, a cash-out refinance is a way to leverage the equity from your home in the form of “cash,” which can then be applied toward paying down your high-interest debt.
So how does it work? If you own a home and have adequate equity, a cash-out refinance enables you to leverage your equity ownership without selling your home. The rationale behind this approach is that mortgage interest rates are typically lower than interest rates on many other credit cards or loans. By consolidating your higher-interest debt with lower-interest, you may be able to improve your monthly cash flow.
Consolidate High-Interest Debt With A Cash-Out Refinance
According to a recent report, approximately 80% of homeowners have equity in their homes — meaning they have equity that they may be able to tap. Many homeowners don’t know what cash-out refinances are, how they work, or that they could be an ideal candidate.
Why Do Cash-Out Refinances Work?
To put it simply, cash-out refinancing works because it essentially allows homeowners to borrow funds at lower interest rates that are typically only seen with mortgages. Almost every other form of debt — including credit card balances, student loans, and personal loans — typically have much higher interest rates.
Over time, loans with high interest rates can cost you a lot of money, because higher interest rates mean higher monthly payments as interest builds month over month. If you are only paying the monthly minimum, you’re paying more and more interest on the unpaid balance every single month. As that interest adds up, your monthly balance increases and increases, which means that it will take you longer to pay down or pay off the balance. The only way to truly get out from under the pressure of high-interest debt is to pay it off.
This is where a cash-out refinance can really help. Cash-out refinancing enables homeowners to tap the equity in their home to pay down (or ideally pay off) their higher interest debt.
Is A Cash-Out Refinance to Consolidate Debt Right for Me?
If you own a home and have high-interest debt, then the answer could be YES. If you have credit cards, student loans, auto loans, or personal loans with high interest rates, paying them off by tapping into the equity of your home might be the way to go. But, it’s important to remember that everyone’s financial situation is different and unique.
Check out the Mr. Cooper Refinance Guide to learn more and determine if a cash-out refinance might work for you.
* A debt consolidation refinance increases your mortgage debt, reduces equity, and extends the term on shorter-term debt and secures such debt with your home. The relative benefits you receive from debt consolidation will vary depending on your individual circumstances. You should consider that a debt consolidation loan may increase the total number of monthly payments and the total amount paid over the term of the loan. To enjoy the benefits of a debt consolidation loan, you should not carry new credit card or other high interest rate debt.