Last updated: November 2025
Quick Answer
With mortgage rates falling, many homeowners are using cash-out refinancing to consolidate high-interest debt. This strategy replaces your current mortgage with a larger loan and converts home equity into cash, which can be used to pay off credit cards, personal loans, or other obligations. It lowers your monthly payments and simplifies your finances—if used wisely.
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What is cash-out refinancing?
Cash-out refinancing replaces your existing mortgage with a new one for more than you currently owe. The difference between your current loan balance and the new loan amount is paid out to you as cash at closing.
This money can be used for nearly any purpose, including consolidating high-interest consumer debt through an equity-backed refinance, a powerful way to turn your home equity into a structured, lower-cost debt solution
Unlike a rate-and-term refinance, which only changes your loan terms or interest rate, a cash-out refinance increases your loan balance in exchange for liquidity, allowing you to use the value stored in your home.
Use GO Mortgage’s Refinance Calculator.Why homeowners are turning to cash-out refinancing in 2026
Lower interest rates have renewed refinancing activity, and cash-out refinances are particularly appealing for those with sizable consumer debt.
With credit card APRs still averaging over 20% and personal loan rates hovering near 11%, homeowners are turning to this debt-relief mortgage option to significantly reduce the cost of that debt and simplify repayment.
Benefits include:
- Lower interest rates on consolidated debt
- Fixed monthly payments instead of variable minimums
- Simplified finances with a single payment
- Improved credit utilization once balances are paid down
For those carrying high-interest balances, tapping into home equity may offer a more sustainable path to financial recovery.
How it works: cash-out refinance for debt consolidation
The process begins by determining how much equity you’ve built in your home. Most lenders allow you to borrow up to 80% of your home’s value.
Leveraging home equity for debt payoff
Example:
- Home value: $400,000
- Current mortgage balance: $260,000
- 80% of value = $320,000
- Potential cash-out = $60,000 (minus closing costs)
You would receive $60,000 at closing and could use it to pay off credit card balances, personal loans, auto loans, or medical debt in a more predictable, interest-friendly way.
How lower rates improve this strategy
Falling mortgage rates make cash-out refinancing more cost-effective by:
- Reducing your new mortgage interest rate
- Increasing the size of your approved loan
- Improving debt-to-income (DTI) ratios, making qualification easier
- Minimizing the monthly impact of larger loan balances
If your current mortgage rate is above 6.50% and you can now qualify at 5.75%, the refinance might save you money, even if you increase your loan amount, especially compared to the cost of unsecured debt.
Cash-out refinancing vs. credit card interest
| Loan Type | Typical Rate (2025–2026) | Monthly Payment on $30K | Total Interest Over 10 Years |
|---|---|---|---|
| Credit Card Debt | 20.00%+ (variable) | $800+ minimums | $35,000+ (if not accelerated) |
| Personal Loan | 10.00%–13.00% (fixed) | $400–$500 | $15,000+ |
| Cash-Out Refinance | 5.75%–6.25% (fixed) | $325–$350 | $10,000 |
Figures are estimates based on a $30,000 balance and a 10-year timeline. Actual results vary.
Pros of using cash-out refinancing to consolidate debt
- Lower total interest paid: Mortgage rates are typically much lower than unsecured debt
- Predictable payments: Fixed-rate mortgages provide payment stability
- Improved credit scores: Reducing utilization on credit cards can improve FICO scores
- One monthly payment: Consolidates multiple debts into a single, easier-to-manage loan
- Possible tax benefits: If a portion of the funds is used for qualified home improvements, some interest may be tax-deductible
Risks and considerations before moving forward
Cash-out refinancing is not without risks. You’re turning unsecured debt into secured debt and using your home as collateral. That means:
- Missed payments put your home at risk
- You’ll pay closing costs, which may offset short-term savings
- You may extend your loan term, potentially increasing total repayment time
- Rising property taxes or insurance costs could offset some savings
Additionally, if you consolidate debt but continue spending on credit cards, you may end up in a worse position than before. Successful consolidation requires discipline and a repayment strategy.
When this strategy makes the most sense
Cash-out refinancing to consolidate debt is typically a good fit if:
- You have at least 20% equity in your home
- Your current mortgage rate is higher than what’s available now
- Your credit card debt is growing or hard to manage
- You plan to stay in the home long enough to recover the closing costs
- You want a structured plan to become debt-free
Avoid this approach if you anticipate selling soon, your current mortgage rate is already low, or you’re unable to control spending post-consolidation.
Act now before rates change again
Mortgage rates may not stay low forever. If you’re carrying high-interest debt, now may be the right time to use your home equity to get ahead. Cash-out refinancing offers a structured, low-rate solution to consolidate balances, reduce monthly bills, and regain control of your finances.
That said, success depends on responsible planning and a long-term commitment to staying debt-free.
Looking for expert help?
High credit card balances don’t have to hold you back. Explore your refinance options and start simplifying your finances today.
FAQ: Cash-out refinancing to consolidate debt
A: Most lenders require at least 20% equity post-closing. If your home is worth $400,000, your total mortgage after cash-out should be no more than $320,000.
A: It may cause a short-term dip due to credit checks and new accounts, but paying off revolving balances can improve your score over time by lowering utilization.
A: Yes. Funds from a cash-out refinance are typically unrestricted and can be used to pay any existing debts, including collections.
A: No. Mortgage interest is only tax-deductible if the cash-out portion is used for home improvements. Consolidating credit card or personal loan debt doesn’t qualify.
A: Possibly not. If your rate is below 4.00%, consider a second-lien product, such as a HELOC or home equity loan, rather than refinancing the entire balance.