Debt Consolidation

• A borrower must choose the cash out mortgage option even if he is consolidating a first and second mortgage on his home, with no additional cash received at the closing table. Additionally, if the borrower consolidates other debt into the mortgage, it is considered a cash out mortgage as well.
  
  

Cash at Closing

• A borrower may choose the cash out refinance option if she would like to "cash in" on the equity that she has built up in her home. This may be to pay off other debts, to complete repairs on the home or to simply have extra spending money in case of emergencies.
  
  

Advantages

• A cash out refinance gives the borrower the ability to consolidate debts and, therefore, lower out-of-pocket debt expenses each month. Additionally, it gives the borrower the ability to cash in on equity at a fixed rate, if a fixed rate mortgage is purchased.
  
  

Disadvantages

• A cash out refinance costs more than a straight refinance, interest rate-wise. This is due to the increased risk to the lender because the original loan amount is increased.
  
  

Considerations

• Borrowers should consider the consequences of consolidating all of their debt into their home. While it does lower the total monthly output, it usually extends the payment of those debts by many years, thereby increasing the overall interest expense over the life of the loan.