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Cash-out refinance | Consolidate credit card debt

Jim Quist Feb 14, 2023 1:26:55 PM
Cash out refinance debt consolidation mortgage

In this article, I'll show you how you can take control of your finances by consolidating high-interest credit card debt with a cash-out mortgage refinance.

Today's average rate for a new credit card is 23.39%, up by 8.26% from last year.

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What is a cash-out mortgage refinance?

Cash Out RefinanceA cash-out refinance is a type of home mortgage refinance that allows you to take out a loan larger than the outstanding balance on your existing mortgage. You get the difference between the new loan amount and the mortgage balance in cash.

In other words, a cash-out refinance lets you, the homeowner, access the equity you've built up in your home and convert it into cash. Then, you can use the money to pay off high-interest debt, make home improvements, or fund other significant expenses.


Suppose you have a mortgage balance of $230,000 and outstanding credit card debts of $50,000. A cash-out refinance is when you consolidate the mortgage and the credit cards into one new mortgage of $280,000 and pay off your credit cards to $0. 

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Why consolidate credit card debts with a cash-out refinance?

A cash-out refinance allows you to tap into the equity you've built up in your home, which can provide a source of cash for debt consolidation. There are several benefits to consolidating credit card debts.

  1. Lower monthly payments: By consolidating credit card debts with a cash-out refinance, you'll lower your monthly payments. A mortgage has a long term and low interest rate compared to a credit card.
  2. Fixed monthly payments: Unlike credit cards, which can have variable interest rates, a mortgage gives you a fixed interest rate and a set monthly payment, making it easier to budget and manage your finances.
  3. Simplified debt repayment: Consolidating multiple credit card debts into one loan with a single monthly payment can simplify the debt repayment process and make it easier to keep track of your debts.


How does a cash-out refinance for debt consolidation work?

Let's say you currently have a 230,000, 30-year fixed mortgage with an interest rate of 4% and a monthly payment of principal and interest of $1,100.

You also have $50,000 in credit card debt with an average rate of 23.39% and a monthly minimum payment of $1,460.

So the average interest rate for the mortgage and the credit cards is 7.46%, and your combined monthly expenses are $2,560.

  • $230,000, 30-year fixed rate mortgage at 4%, with a monthly payment of $1,100
  • $50,000, credit card debt at 23.39% with minimum payments totaling $1,460
  • $280,000, combined debt with a blended interest rate of 7.46% and a combined monthly cost of $2,560.

Next, you consolidate the credit card debt by taking out a new 30-year fixed-rate mortgage for $280,000 at 7% with a monthly payment of $1,863.

  • $280,000, 30-year fixed rate mortgage at 7%, with a monthly payment of $1,863.

By consolidating your debt with a cash-out refinance, you lengthen the term of your loan, lower the interest rate from 7.46% to 7%, and save $697 per month. 

  • $2,560 current payment - $1,863 consolidated payment = $697 monthly savings.
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What credit score do I need for a cash-out refinance?

The credit score requirements for a cash-out refinance vary depending on the lender and the type of mortgage program.

For example, NewCastle Home Loans will accept a credit score of 620 or higher for a cash-out refinance. However, some lenders may require higher scores, such as 640 or 680, to qualify for a cash-out refinance.

A higher credit score can help you qualify for a lower interest rate, saving you thousands of dollars in interest payments over the life of the loan.

In addition to credit score, we also consider other factors, such as your income, employment history, and debt-to-income ratio, when determining your eligibility for a cash-out refinance.

Use our free mortgage calculator to view the current rate, payment, and cost for a cash-out refinance based on the credit score you enter.

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What are the tax benefits of a debt consolidation mortgage?

Consolidating credit card debt through a cash-out refinance may have some tax benefits, depending on the circumstances.

Suppose you itemize your deductions on your tax return. In that case, you may be able to deduct the mortgage interest you pay on your cash-out refinance loan, which can result in a lower taxable income and a lower tax bill.

The deductibility of mortgage interest is subject to certain limits and restrictions. The tax benefits of consolidating credit card debt through a cash-out refinance may vary depending on your tax situation. Consider consulting with a tax professional for more information.


How much cash can I take out of my house when doing a cash-out refinance

The cash you can take out of your house when doing a cash-out refinance depends on the lender, loan type, credit score, and equity in your home.

  • Conventional loan: For a conventional loan, the maximum loan amount is 80% of your home's appraised value and the minimum credit score is 620.
  • FHA loans: For an FHA loan, the maximum loan amount is 80% of your home's appraised value and the minimum credit score is 580.
  • VA loan: VA loans are different. The VA cash-out refinance loan gives veterans access to 100% of their home equity.


Suppose you want to consolidate a $230,000 mortgage and $50,000 credit card debt. In that case, the property's appraised value must be at least $350,00. 

  • $350,000 your home's appraised value 
  • × 80% maximum loan-to-value ratio for a cash-out refinance
  • = $280,000 maximum mortgage in this scenario

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How long does it take to complete a cash-out refinance?

The time it takes to complete a cash-out refinance can vary depending on the lender and the complexity of your financial situation. On average, a bank or online lender can take anywhere from 4 to 8 weeks, start to finish.

NewCastle Home Loans has a 2-week closing guarantee, which means you get debt relief twice as fast. Plus, you have a lower rate, payment, and better service.

The following are the typical steps in a cash-out refinance:

  1. Apply: Apply in minutes online or talk to a mortgage expert at NewCastle Home Loans. 
  2. Appraisal: Next, we order an appraisal of your property to determine its value, which can take several days to a week.
  3. Approval: We verify your financial information while we wait for the appraisal. Then, after approving the appraisal report, we give you a mortgage commitment.
  4. Closing: A closing agent will meet with you to sign the loan agreement to finalize the loan.

Remember that these are the typical steps for a cash-out refinance. The actual time it takes to complete the process can vary depending on the lender and your circumstances. Discussing your loan timeline with your lender to get a more accurate estimate would be best.

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Whom should I contact to help me with a cash-out refinance?

When considering a cash-out refinance, a local mortgage lender is the best place to start. They can help you determine if a cash-out refinance is right for you, review your credit, income, and asset information, and provide you with a loan estimate and an interest rate quote.

NewCastle Home Loans is a local mortgage lender offering the lowest rate and fees for a cash-out refinance. Start by checking our rates and costs online. 

Shop around and compare offers from multiple lenders to ensure you get the best terms and interest rates. Remember that a cash-out refinance typically involves taking on a larger loan and a longer loan term, which means you may pay more interest over the 30-year loan term. Additionally, you may have to pay closing costs. Before applying, you should consider the benefits and drawbacks of a cash-out refinance.

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Jim Quist NewCastle Home Loans
President and Founder of NewCastle Home Loans. Jim has been in the mortgage business for 20+ years.

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