Even with a mortgage, your home is a primary asset because you can gain equity with each monthly mortgage payment. This equity can be used for various purposes including helping you consolidate debt.
Pros and cons of refinancing your mortgage to pay off debt
A benefit of doing a cashout refinance to pay off debt are securing a lower interest rate, especially if you bought your home when mortgage rates were much higher. You can also pay off high-interest credit card debt and other loans all at one time. With the average credit card interest rate ranging from 15% to 24%, taking advantage of low mortgage refinance rates can help you pay down debt quicker and save money. Plus, paying off outstanding debt can boost your credit scoring.
You can explore your mortgage refinance loan options and use Credible’s free mortgage calculator to see if this is the right money move for you.
One of the biggest drawbacks of getting a cashout mortgage refinance is that you may be putting your home at greater risk. If you are unable to make your monthly mortgage payment for whatever reason, you would risk losing your home and might owe more on it than you did originally. Also, your loan repayment term could be extended depending on how much home equity you had.
It’s also important to note that if you don’t have enough equity in your home, you may not qualify for a cashout refinance. Most lenders will not approve you for a mortgage refinance until you have at least 20% equity in your home.
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