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Quick answer: Yes, you can through a cash-out refinance and it’s a great option for some people. Here’s what it boils down to: home loans typically have lower interest rates compared to credit cards, which typically have high interest rates. In order to take advantage of mortgage rates to pay off credit card debt, cash-out refinances allow you to “cash out”equityin your home. The amount that’s cashed out becomes part of your refinanced mortgage.
So, instead of paying a bunch of high-interest credit card debt, you pay one lower-interest home loan. (This process can also be described as consolidating credit card debt into your mortgage.)
This could free up a lot of money each month depending on your debt and how your loan is structured. For the twelve-month period of June 2023 to May 2024, we saw our customers lower their monthly debt payments by $548.29 per month on average.* Here’s more on how they work.
How to roll credit card debt into a mortgage
When you do a cash-out refinance, you take out a new home loan that replaces your old one, and you receive a portion of your home equity as cash after the new loan closes. If your goal is paying off credit card debt, you can put that cash directly toward your card balances.
The amount of equity you can turn into cash will depend on your loan’s terms:
- Mostcash-outrefinancesallow homeowners to draw up to 80% of their home equity.
- Others, such asFHA loans, allow up to 85%.
- VA loansallow up to 100%, depending on the state.
That said, using home equity to consolidate credit card debt into your mortgage won’t reduce yourtotaldebt. You’ll have less of a balance on your cards, but more on your home loan. The equity you took out as cash will be added to your new mortgage’s balance.
Home equity loans offer lower interest rates
One of the biggest benefits of consolidating debts into your mortgage is taking advantage of mortgage rates.
- The average interest rate on credit cards today is well over 20%. “Penalty rates” are even higher for late-payers or those with poor credit.
- In comparison, average 30-year fixed mortgage rates are closer to the 6 and 7% range, as of mid-2024.
Of course, rates vary among borrowers depending on their individual financial situation, but any home loan will likely have a lower rate than the average credit card.
Crunch the numbers beforetapping into home equity
All that said, there are also tradeoffs to consider:
- Cashing out the equity in your home means you’re essentially using up that equity.
- You’re also increasing your mortgage debt and most likely extending the length of your loan.
- You’ll risk foreclosure if you default on your refinanced loan.
- These factors can vary depending on your situation, but they’re generally what borrowers can expect.
There are other things to consider in choosing your strategy for consolidating credit card debt into your mortgage. For example:
- Many lenders require you to leave 20% equity in your home after cashing out.
- They will also want to ensure that your new monthly payment works within your debt-to-income ratio.
If you want to explore what leveraging your home equity could mean for you, crunch the numbers on our refinance calculator. Watch for the field where you can enter the “Cash-Out Amount.” You can also review additional tips from the Consumer Financial Protection Bureau.
Ready for personalized advice? Talk to one of ourexperienced mortgage expertsat 833-702-2511 to learn more about your options or get started online.
Disclaimers
Note:Debt consolidation refinances increase mortgage debt, reduce equity, and extend the term on shorter-term debt and secure it with your property. The relative benefits received from debt consolidation will vary. A debt consolidation loan may increase the total number and amount of monthly payments and the total amount paid over the term of the loan. To enjoy the benefits of a debt consolidation loan, borrowers should not carry new credit card or high interest rate debt.
*Average monthly debt payment reduction figures based on Mr. Cooper refinances from June 2023 – May 2024 in which a customer paid off at least one non-mortgage debt. Comparison between total minimum monthly payments before and after refinance. Individual results will vary.
Any third party trademarks and tradenames used on the Mr. Cooper® Blog are the property of their respective owners. Nationstar Mortgage LLC d/b/a Mr. Cooper is not affiliated, associated, or sponsored by any of these owners. Use of these names and trademarks is not intended to and does not imply endorsem*nt, but is for identification purposes only. Information provided does not necessarily represent the views of Mr. Cooper. Information is subject to change without notice.
FAQs
Quick answer: Yes, you can through a cash-out refinance and it's a great option for some people.
Is it a good idea to put debt into a mortgage? ›
Why consolidate debt into a mortgage? Refinancing your existing mortgage into a consolidation loan combines your debts into one payment. This is a great option if you have high-interest loans and you're only paying the interest rather than the principal.
Can you consolidate debt onto your mortgage? ›
If you consolidate your debt into your mortgage you can expect an even lower rate, since your mortgage is a secured loan. Your repayments will be spread over a longer period of time, so you can expect your monthly or weekly payments to be less. You'll only have a single regular repayment.
Can I add my line of credit balance to my mortgage? ›
It's possible to combine them.
You may also know that, like a mortgage, a line of credit can be registered against your home, allowing you access to a lower interest rate. What you may not be aware of is that these two financial products can actually be combined into one.
Can I consolidate my debts with a mortgage? ›
A debt consolidation mortgage could allow you to put all your debts with one lender. This could result in you paying less interest overall and help you reduce your overall monthly payments.
Can my house be taken for credit card debt? ›
If you owe money for most other debts like credit cards and medical bills, you (usually) did not sign a security agreement. So, the creditors cannot seize your home to pay the debt. But, if you want to sell your home and creditors have filed judgments for unpaid debts, you may need to pay those debts before the sale.
How much debt is too much to buy a house? ›
Mortgage lenders want to see a debt-to-income (DTI) ratio of 43% or less. Anything above that could lead to the rejection of your application. The closer your DTI ratio is to that percentage, the less favorable your mortgage terms are likely to be. A Home Purchase Worksheet can help you determine your DTI ratio.
Will debt consolidation affect my mortgage? ›
Generally speaking, having a debt consolidation loan will not have a negative impact on your ability to refinance your home or obtain a new mortgage. In fact, it may actually improve your ability to qualify. One thing that a lender will assess during the mortgage or refinancing review is your debt-to-income ratio.
Is it a good idea to use home equity to consolidate debt? ›
Experts recommend that you only use your home's equity for emergency situations, such as unexpected medical bills or emergency debt consolidation. Think carefully about the loan's purpose down the line. Consider your future goals, other financial aspirations and whether you plan to stay in your home for the long term.
Does consolidating debt hurt credit? ›
It makes getting out of debt easier — and sometimes cheaper. That said, debt consolidation isn't a magic bullet. It can temporarily ding your credit scores or bring even more damage if you're not disciplined with your debt repayment.
Debt consolidation is a good idea if monthly debt payments don't exceed 50% of your monthly gross income, and you have enough cash flow to cover debt payments.
Do you have to close credit cards for debt consolidation? ›
Can I use debt consolidation without closing credit cards? Yes, although it depends on your situation. If you have good credit and a limited amount of debt, you probably won't need to close your existing accounts. You can use a balance transfer or even a debt consolidation loan without this restriction.
Can I put my debt on my mortgage? ›
Consolidating debt into your mortgage can be a smart move because it often means lower interest rates. This can save you money in the long run by reducing the amount you pay in interest each month.
Can you add money to your mortgage to pay off debt? ›
Some specialist mortgage lenders will let you borrow extra on your mortgage in order to pay off your DMP. Like with any form of debt consolidation, it's really important to get independent financial advice. Our Mortgage Experts can look at your situation, and suggest options you might not have thought about.
Can I borrow against my mortgage? ›
A home equity loan, also known as a second mortgage, enables you as a homeowner to borrow money by leveraging the equity in your home. The loan amount is dispersed in one lump sum and paid back in monthly installments.
How much credit card debt is OK for a mortgage? ›
There is no set amount that lenders will consider too much credit card debt for you to have. They will instead look at your debt to income ratio to be sure that you will be able to comfortable afford both your repayments of your debts and your mortgage.
Can I put my credit card on my home loan? ›
Bottom line. Since lenders typically don't accept credit cards, you can usually only make a mortgage payment on your card via a third-party platform. Paying one debt by adding to another is a risky maneuver, however, and you should only consider it if you can afford to cover the payment in full.
Can mortgage lenders see credit card debt? ›
Do mortgage lenders care about credit card debt? Yes, any form of debt will be assessed in relation to your income when you apply for a mortgage. Lenders calculate your debt-to-income ratio to help make their decision about whether you can afford the size of the mortgage you're applying for.
How much credit card debt is too much for a mortgage loan? ›
Most mortgage lenders want your monthly debts to equal no more than 43% of your gross monthly income. To calculate your debt-to-income ratio, first determine your gross monthly income. This is your monthly income before taxes are taken out.
