Cash Out Mortgage Refinance for Debt Consolidation

A mortgage refinance for debt consolidation is still available for some homeowners. Consolidating debts into one lower payment may be beneficial if you have sufficient equity for a cash out refinance.

Unsecured credit cards, or other debts, can be paid off using home equity to secure a low fixed rate, but a cash out refinance is limited by strict loan to value guidelines. A conventional mortgage refinance is typically limited to a maximum of 80% of value, while an FHA refinance has a maximum of 85%.

Consolidating credit card debt with a refinance can eliminate daily compounded interest, which accumulates more than a simple interest mortgage, especially if only the minimum payments are made.

Here's an example: An average rate of 15% on credit cards with a combined balance of $40,000 could have a monthly payment of about $560, over a 15 year term. A debt consolidation home loan with the same balance at 8% could have a payment of about $382 over the same term. A lower rate would of course result in more savings.

Mortgage refinancing may save money by eliminating high interest debt, a possible tax deduction, and if the monthly savings were applied to the payments, thousands of dollars in interest could be saved by reducing the term of the loan. 

Refinance Mortgage Rates