Home Equity

Can You Refinance Your Mortgage to Consolidate Debt?

By Tom Burchnell
refinance consolidate debt

Yes, you can consolidate debt by refinancing your mortgage, and it can be advantageous to do so if you can replace high-interest credit card debt with a lower-interest loan. One means of doing that is through a cash-out refinance, sometimes known as a debt consolidation refinance. In this type of loan, you replace your current mortgage with a new loan for a larger amount than is owed on the home. You receive the difference in cash, using that money to pay off your higher-interest debt. In effect, you have substituted lower-interest debt for higher-interest debt, saving interest costs in the process. By replacing multiple monthly loan payments with a single monthly payment, a cash-out refinance also provides convenience. Before deciding to refinance your mortgage for debt consolidation purposes, you should consider the risks, the effect on your home equity, and the closing costs.


A primary reason for refinancing a home mortgage is to consolidate credit card debt. Credit card debt is unsecured, meaning it isn’t backed by collateral. A credit card company can’t take your home if you can’t pay what you owe, but this can happen when you refinance a home mortgage. Mortgage debt is secured by your home, so the lender can take it if you stop making payments. 

A cash-out refinance increases the balance on your loan. Your monthly payment can therefore increase, even if the new loan has a lower interest rate. This outcome depends on several other factors, such as the term of the loan. You don’t want to extend the term of the loan if you can help it, since that would increase the total amount that you pay. However, a shorter term will increase your monthly payments. You’ll need to consider all these factors to ensure that your refinance has the best terms for meeting your particular financial goals.


The equity you have in your home is a critical factor in determining whether refinancing your mortgage makes sense. Lenders primarily base the amount they’re willing to lend on your equity, which is the difference between what your home’s worth and what you owe on the mortgage. Assume that you owe $200,000 on a home with a fair market value of $300,000, meaning the equity in your home is $100,000.

Lenders typically limit a mortgage refinance to 80 percent of equity, which would be $80,000 for this example. You’ll also need to pay for mortgage insurance in most cases if your refinance will reduce your equity below 20 percent of your home’s value.

Closing Costs

Closing costs can be significant in a refinance, so you need to consider this factor carefully. Lenders routinely charge hundreds or even thousands of dollars in fees to refinance a mortgage, which is money you could use to pay down debt. In particular, you need to ensure that the savings in interest over the lifetime of the new mortgage through refinancing will be greater than the closing costs of the new mortgage.

Key Takeaways

If you’re looking to refinance your mortgage to consolidate debt, there are key factors to consider first. Talk to a financial advisor about whether this could be the right solution for you.

Debt Management
Tom Burchnell
Written by Tom Burchnell
Director of Product Marketing

This article is published for educational and informational purposes only. This article is not offered as advice and should not be relied on as such. This content is based on research and/or other relevant articles and contains trusted sources, but does not express the concerns of EasyKnock. Our goal at EasyKnock is to provide readers with up-to-date and objective resources on real estate and mortgage-related topics. Our content is written by experienced contributors in the finance and real-estate space and all articles undergo an in-depth review process. EasyKnock is not a debt collector, a collection agency, nor a credit counseling service company.