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Pros and Cons of Cash-Out Refinances
Cash-out refinances often are used to pay down debt. They have pros and cons.
Imagine that you use a cash-out refinance to pay off credit card debt. On the pro side, you’re reducing the interest rate on the credit card debt. On the con side, you may pay thousands more in interest because you’re taking up to 30 years to pay off the balance you transferred from your credit cards to your mortgage.
But the biggest risk in this scenario is in converting an unsecured debt into a secured debt. Miss your credit card payments, and you get nasty calls from debt collectors and a lower credit score.
Miss mortgage payments, and you can lose your home to foreclosure. Home equity debt that’s added to the refinanced mortgage always was secured debt. See what else you need to know about down payments.