What exactly is a cash-out refinance? A cash-out refinance is a tool homeowners can use to pay off debt, renovate the house, pay for school, and all sorts of other things. It works like this, say you owe $200,000 on your mortgage, and the home is valued at $350,000. That's a lot of equity that although looks great on paper, isn't really doing much but sitting. Let's say you also have $50,000 of high interest (normally 20%+) credit card debt. You can do a cash-out refinance on your home, and pull $50,000 worth of equity out of your house and add it to your mortgage at a significantly lower FIXED rate, and pay off those high interest credit cards.
Won't adding money to my mortgage increase my monthly payment?
The short answer is, yes. Your monthly mortgage payment will increase. However, let's say you are paying $1,000 a month in high interest credit card debt. We will also assume that using a cash-out refinance to pay off those debts increased your mortgage by $400 a month. You are still cash flow positive $600 a month. You have now increased your yearly cash flow by $7,200 just by restructuring your debt.
