How to Refinance to Pay Off Debt

Cash-out refinances can be used to pay off other debts.

Cash-out refinances can be used to pay off other debts.

If you take out a loan that is greater than your current principal balance, refinancing your mortgage loan can help pay off other debts, This is generally called a cash-out refinance. You can do this only if the appraised value of the property is worth more than the unpaid balance. Mortgage rates are often lower than the interest rates on other types of loans -- such as credit cards or auto loans -- so it can save money over time. Additionally, rolling all the payments into one monthly payment may make it easier to manage. The refinancing process is similar to the process you went through with the original mortgage loan.

Contact your current mortgage lender about refinance options. Ask about current interest rates and closing costs. If the terms offered by your current lender don't appeal to you, shop around with other lenders or work with a mortgage broker.

Apply for the refinance loan with the lender of your choosing. Be prepared to provide proof of income, such as pay stubs and tax returns. Wait for the lender to contact you with a decision.

Schedule a closing date with the lender. This involves signing many documents regarding the new loan and its terms -- it's essentially the same as the process you went through when you first obtained your mortgage.

Attend the closing, and take the check provided by the lender after the loan transaction is completed. Use this money to pay off your other creditors.

Items you will need

  • Proof of income
  • Tax returns

Warning

  • Make the decision to refinance carefully. While reducing your monthly payments might sound appealing, also consider the new loan term and interest rate. Additionally, you may have to pay the closing costs up front, so factor that into your decision as well.

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