Cash-out refinancing is a form of refinancing that involves getting an increased amount of money from a home loan or other capital asset. This additional sum is in the form of a new loan and so comes with its own financing costs and terms. The purpose for taking on this extra debt is to be able to free up available credit
Debt consolidation [can introduce] more favorable repayment terms than those offered by original creditors when they were taken on
Consolidating your debts [may result in] lowering monthly payments which may leave you with more disposable income per month.
However it can also extend the length of time you spend repaying your debt, leaving you indebted for longer and potentially leading to interest accumulating at a faster rate.
Consolidating debt can also come with a cost as it often comes with a fee or interest rate that is higher than what you would have originally paid.
One advantage of taking on an additional loan, is the potential to release equity from another property you own as security against borrowing extra money. Cash-out refinancing could be seen as a form of “reverse mortgage” which involves borrowing against your home instead of lending money from it
In many cases where one has enough equity, they may want to take out a reverse mortgage despite the negative connotations associated with them and because people are living longer now, this might leave us much poorer in our old age if we do not draw upon these funds now while we are still able to do so.
Cash-out refinancing, debt consolidation [can be] good for those who are looking for ways to consolidate their debts and wish to reduce monthly repayments. If you have any equity in your home it can also be a way of releasing this without having to sell up
However, if you are unable to make the new loan repayments or if interest rates rise, then debt consolidation could become more expensive than before. You should always compare interest rates between lenders before signing on the dotted line as these tend to vary drastically.
