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Even with the best-laid plans and stable income, life events and expenses can pop up unexpectantly and cause us to fall into debt that feels impossible to get out of. A big medical bill, car repair cost, and high-interest credit card debt are just a few expenses that can be extremely stressful and cause us to lose sleep. Other times, we have a big goal like renovating a home or putting a kid through college that require savings we don’t have.

While homeowners may have debt or a large expense in one area of their finances, they could also be sitting on tens of thousands of dollars in home equity. By using home equity strategically, some homeowners can reduce debt, lower stress, and build a more secure financial future.

For many homeowners, home equity is one of their most valuable financial assets. And home equity isn’t just valuable when you’re getting ready to sell the home, it’s also beneficial while you’re still living there.

So how might you use home equity to your advantage while you’re still living in the home? A cash-out mortgage refinance is a way to tap into that equity to improve financial stability, reduce debt, and regain peace of mind. This tool can be a critical option for homeowners who feel over-burdened by monthly expenses and need relief.

Discover your options by using our free Cash-Out Refinance Mortgage Calculator.

A cash-out mortgage refinance isn’t a one-size-fits-all solution, but it can be a smart tool to help homeowners regain control of their finances. So how does cash-out mortgage refinancing work? 

Cash-out mortgage refinancing is available to many homeowners whose home is worth more than what they owe on their mortgage. This method replaces their current mortgage with a new, larger loan, and the homeowner is given the difference in cash.

For example, if someone’s home is worth $400,000 and they have $250,000 left on their mortgage, they could refinance with a new mortgage loan for $300,000, and receive $50,000 in cash, minus fees.

Mortgage advisors are ready to walk members through every part of the process from start to finish. United Federal Credit Union Mortgage Advisor James Madison has over 15 years of experience in the mortgage industry and has helped more than 600 families buy or build a home. He says before getting started he takes the time to learn what the individual is looking to achieve. Madison said, “Part of the process would be asking the applicant what their goals are. Is it that they just want to refinance their current mortgage balance to lower the rate? Or if they want to get cash, or refinance to do home improvements or consolidate debt.”

Madison continued, “One of the things I look at is net monthly savings and then how much it is going to cost to refinance. A general rule is that if they can break even within 24 months of refinancing to cover what the costs are associated with refinance, it's a good idea to go ahead and do it.”

It’s important to acknowledge that refinancing your mortgage this way will increase your mortgage debt. However, it can also be a responsible way to get back on track. Madison said it all depends on the goals of the individual. “Everyone is in a different place,” Madison said, “We've been able to help a member refinance their current mortgage, consolidate their credit card debt, even throw in a car loan that they wanted to refinance. And I've helped [members save] anywhere from $400 to $600 a month.”

While the new mortgage may have a higher balance overall, qualified homeowners may be able to use this tool to avoid paying high interest rates on credit card debt. This solution can result in lower overall interest costs and a new, practical financial plan that they can stick to. Members can take the cash and pay off debt on their own or get United’s help in consolidating debt and paying it down.

Although the mortgage may have a higher balance overall, there is also a way to strategically use cash-out mortgage refinancing to shorten the time it takes to pay off a home. Madison explained, “If one of their goals was to consolidate their debt, but they were also mindful that they wanted to pay their house off faster, I've seen some members who took that monthly savings and applied it toward their mortgage with us.”

He continued, “By doing that, it accelerated the amount of time it would take to pay their house off. They paid off credit cards, they paid off a car loan, and then they took that monthly savings and applied it to their principal mortgage balance every month.”

Here’s what someone’s financial situation could look like before and after using a cash-out mortgage refinance.

Before: Financial Strain and High-Interest Debt

Many people find themselves juggling multiple financial burdens that feel unmanageable. Even with stable income, financial obligations can feel overwhelming and impossible to escape. Monthly payments on credit cards may be unmanageable, and the inability to pay off debt can negatively impact credit scores and even our mental health.

• High-interest credit card debt with rates often exceeding 25%
• Auto loans and other installment debts
• Rising living costs without matching income growth
• Stress and uncertainty about how to make ends meet

After: Strategic Use of Home Equity

With a cash-out mortgage refinance, a homeowner replaces their existing mortgage with a new, larger one, and takes the difference in a lump sum of cash. This money can be used to pay off debt and to cover upcoming large expenses.

• Pay off high-interest debt, reducing total monthly obligations
• Use for home repairs and renovation
• Pay off medical bills and other big expenses
• Use for college tuition

Benefits of a Cash-Out Refinance

A cash-out refinance can help you secure lower interest rates on consolidated debt, simplify your monthly payments, and improve your credit utilization by making better use of available credit.

• Lower interest rates on consolidated debt
• Simplified monthly payments
• Improved use of available credit

Things to Consider

When considering a cash-out refinance, it's important to be aware that it increases your mortgage debt, may lead to higher monthly payments, and involves closing costs and fees.

• An increase in mortgage debt
• Closing costs and fees apply
• Monthly mortgage payments may increase

Getting Started

To get started with a cash-out refinance, meet with a mortgage advisor to discuss your financial goals, check your credit score, and find your home’s estimated value on home-buying websites. Based on this information, the advisor will let you know what you qualify for.

• Meet with a mortgage advisor and discuss financial goals
• Check credit score
• Use home buying website to estimate home value
• Mortgage advisor lets applicant know what they qualify for

Is a cash-out mortgage refinance a good tool for you? Schedule an appointment with a mortgage advisor who will walk you through it. 

Loans subject to credit and collateral approval as well as terms and conditions.