Using cash out of the equity in your home through refinancing or by obtaining a second mortgage or a home equity line of credit has advantages and disadvantages. The main disadvantage is that you are using up the equity in your home. Your home is like a big savings account and every time you take money out of the equity in your home you are making withdrawals on this savings account. However, this money can be used to pay off higher rate debts, give you peace of mind, provide more money monthly to invest, for home improvements to increase your home's value and many other things. Many times the interest on the full amount of your mortgage loan can be tax deductible also.

Lenders consider all loans that either take cash out of closing or pay off debt to be cash-out refinances. Usually a refinance in which you get the lesser of 2% or $2000 will be considered a rate term refinance.

Getting a cash-out refinance is a great way to help pay off high interest credit cards. It will help reduce your monthly expenses, and the interest will be tax deductible once it is part of your mortgage.

Once you borrower over 80% of the value of your home you will have to pay PMI (private mortgage insurance) and you will most likely see a slight rate increase the higher the LTV (Loan to value) that you go with a cash out refinance. Sometimes when doing a cash out refinance it may be better to either do it as a first and second mortgage or to just obtain a 2nd mortgage or a HELOC (Home Equity Line of Credit). This way you can avoid any rate bumps to your first loan and avoid PMI. A licensed mortgage advisor can assist you to find what will work best for you and your individual situation.

Your mortgage broker can do a financial analysis of your monthly payments and normally save you hundreds of dollars monthly by paying off high rate cards and/or consolidating other debts you may have.