Cash-out refinance to pay off debt: is it worth it?

Updated November 8, 2026

A cash-out refinance replaces your mortgage with a bigger one and pays you the difference in cash. Many homeowners use that cash to pay off credit cards, personal loans or car loans at a much lower rate.

How it works

1. A lender values your home and works out how much you can borrow.
2. The new loan pays off your current mortgage.
3. What's left, minus closing costs, comes to you or goes straight to your creditors.

Example: your home is worth $400,000 and you owe $220,000. Most lenders cap a conventional cash-out loan at 80% of the value, here $320,000. That leaves up to about $100,000 before closing costs.

How much you can take out

• Conventional loans: up to 80% of the home's value for a home you live in.
• FHA loans: up to 80%, and you must have lived in the home for the past 12 months.
• VA loans: some lenders go up to 90% or 100% for eligible veterans.

What it costs

• Closing costs usually run 2% to 5% of the new loan: appraisal, title, lender fees.
• The new rate applies to the whole loan, not just the cash. If your current mortgage rate is lower than today's rates, you give that up. Then a home equity loan or HELOC is often cheaper.
• A new 30-year term restarts the clock. Lower payments can still mean more interest in total.
• Taxes: interest on the part used to pay other debts is generally not deductible. Only debt used to buy, build or substantially improve the home qualifies.

Our cash-out refinance calculator compares a bigger new mortgage with keeping yours and adding a second loan.

The risk to weigh

Credit card debt is unsecured. If you can't pay, your credit suffers, but your home isn't at stake. Once that debt is part of your mortgage, falling behind can lead to foreclosure. A cash-out refinance works best when you've fixed what caused the debt and have stopped using the cards.

When it makes sense

• You have plenty of equity, and today's rates aren't far above your current mortgage rate.
• The interest saved on your debts clearly beats the closing costs.
• Your income is steady enough for the new payment.

If not, compare a home equity loan or HELOC or a debt consolidation loan.