Cash Out Mortgage Refinancing
If you already own a house, another option for debt consolidation is cash out mortgage refinancing. Low interest rates for the past several years have sparked an era of mortgage refinancing as thousands of people are taking advantage of this opportunity.
Cash out mortgage refinancing is when you replace your mortgage with a new mortgage and take out the equity in your home in cash. At closing, the lender will pay the difference between the balance on your old mortgage and the amount of the new mortgage in a lump sum. Cash out mortgage refinancing is different from a home equity loan because it is a replacement mortgage not a second mortgage.
If you have a large equity in your home, this debt consolidation method might be for you because you might be able to refinance your mortgage for more than you owe and use the difference to pay-off your debts.
Max owns a house with an appraised value of $400,000 and has a first mortgage on which he owes $300,000. Max’s home equity is therefore $100,000. To pay of his credit cards and other loans, Max needs $30,000. He can refinance his mortgage for $330,000 and cash out the extra $30,000 to pay-off his creditors. Notice, Max’s home equity will now be $70,000.
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