The Quick Read: Only when the new loan costs less over its full life than the debts it replaces, and you can carry a bigger mortgage secured by your home. It must be a full cash-out refinance, not a rate-and-term one. The monthly payment usually falls, but total interest often rises because the debt stretches over a mortgage term.
Can a Cash-Out Refinance Pay Off Auto and Personal Loans?
Yes. A conventional cash-out refinance replaces your current first mortgage with a larger one. The extra money can pay off other debts, including a car loan or a personal loan. Lenders send those payoffs straight to the creditors at closing, and any remainder comes to you.
You can read more about the loan itself on Lendmire’s cash-out refinance programs page. Here is the part that matters for this decision. Nothing gets erased. The debt moves from the car or from an unsecured lender onto your house.
That one change drives everything else here. A personal loan is unsecured, so a missed payment hurts your credit but does not put your home on the line. A mortgage is secured by the property. Miss enough payments and foreclosure becomes possible.
Think of it as trading a smaller risk for a bigger one in exchange for a different payment shape. Sometimes that trade makes sense. Often it doesn’t.
How Much Cash Can Your Equity Reach?
On a conventional cash-out refinance, the new loan tops out at 80% of the home’s appraised value on a one-unit principal residence. On two- to four-unit homes, second homes and investment property, the ceiling drops to 75%. Occupancy decides the leverage, so a rental or second home gets less room.
Run it in percentages. Say your home appraises at 100% of value, and your current mortgage is 60% of it. Your personal loan is 5% and your car loan is 8%. The payoffs total 73%. The new loan can reach 80%, which leaves 7% of value for closing costs and any cash you want.
Closing costs are charged on the whole new loan, not just the extra cash. They come out of the same space. A home with thin equity can run out of room before the debts are paid.
The appraisal sets the ceiling, so a lower value shrinks everything. Your credit, income and the debts that remain also shape the result.
Why a Rate-and-Term Refinance Won’t Work
A rate-and-term refinance, which the agencies call limited cash-out, pays off your first mortgage and closing costs. It can also pay a second lien that was used to buy the home, with only a small, capped amount of cash back. Fannie Mae’s Selling Guide on limited cash-out refinances limits the other liens it may pay to those used to acquire the property.
An auto loan or personal loan is not on that list. Pay one off and the file becomes a cash-out refinance. That means the lower leverage cap applies, and the extra seasoning tests apply too.
A common misunderstanding is that calling it a “debt consolidation” refinance relaxes the rules. It doesn’t. The same equity, seasoning and credit tests apply however you use the money.
Auto Loans vs. Personal Loans: Different Debts
The two debts behave differently, so judge them separately.
| Factor | Auto loan | Personal loan |
|---|---|---|
| Collateral | The car | None |
| Risk if unpaid | Repossession | Credit damage, collections |
| Remaining term | Often short | Varies |
| Rolled into mortgage | Car value falls, debt lasts | Debt moves onto the home |
The car loan is already secured, usually by an asset that loses value. Rolling it into a mortgage spreads a few years of payments over many. You may still be paying for a car long after you sold it. Skip it unless the car loan’s cost is high and you can accept the longer payoff.
The personal loan is a stronger candidate when its cost is high and many payments remain. The weakest candidate is any loan that is nearly paid off. The closing costs on that slice of the new loan rarely earn their keep.
Three Paths Side by Side
Picture a homeowner with a personal loan, a car loan and a decent first mortgage. There are three choices.
| Path | Monthly payment | Total interest | Time in debt | Risk to home |
|---|---|---|---|---|
| Roll in nothing | Unchanged | Lowest | Shortest | Lowest |
| Personal loan only | Lower | Often higher | Longer | Higher |
| Both loans | Lowest | Often higher | Longest | Highest |
The pattern holds in most files. Each debt you add lowers the monthly payment and stretches the timeline. That feels like relief. It can also mean paying more in total, because a short loan became a 30-year loan.
Watch another cost. Your current mortgage is replaced entirely, including its rate and term. If the loan you have is a good one, you give it up to reach the other debts. That is a real price, and many borrowers overlook it.
Break-even is the cleanest test. Add the closing costs, then ask how many years of interest savings it takes to cover them. If you may move or refinance again before that point, the math fails.
What You Take On
The Consumer Financial Protection Bureau studied this behavior in its report on cash-out refinances and non-mortgage debt. It found that turning non-mortgage debt into mortgage debt can put the home at risk of foreclosure if payments become unsustainable. Defaulting on a non-mortgage debt is unlikely to cost you the home.
Four risks matter most.
- Foreclosure exposure. The home secures the whole balance now.
- Term extension. Lower payments often hide higher lifetime interest.
- Less equity. A larger loan leaves a thinner cushion if values dip, which can make a later sale or refinance harder.
- Debt creep. Paid-off accounts free up credit. If spending returns, you carry both the mortgage and the new balances. (This one catches people more often than they admit.)
On credit scores, paying off balances can help, but the effect varies. Nobody can promise a score gain.
A Fit Check, Debt by Debt
Run each debt through the same screen.
Good fit if:
- The debt has a high cost and many payments remaining.
- Your equity clears the leverage cap with room for closing costs.
- You plan to stay in the home past the break-even point.
- You have a plan for the freed-up credit lines.
Think twice if:
- The debt is nearly paid off.
- Your current mortgage is a good one you would be giving up.
- Your budget is already tight, so a missed payment is plausible.
- Your goal is a lower payment, not a lower total cost.
A cleaner option may exist. A personal loan alone, a home equity loan or a HELOC leaves your first mortgage in place. If a HELOC is already in the picture, Lendmire’s piece Should an Owner With a HELOC Roll It Into an FHA Cash-Out? covers that path.
| Option | First mortgage | Collateral | Fits when |
|---|---|---|---|
| Cash-out refinance | Replaced | Home | Current loan is not worth keeping |
| HELOC or home equity loan | Stays | Home | Current loan is worth keeping |
| Personal loan | Stays | None | You want to keep the home out of it |
| Keep paying as is | Stays | Unchanged | Debts are short or low cost |
What the Lender Checks
Underwriters look at your income, your debts, your credit and the property’s value. The automated finding governs most conventional files, and the total ratio ceiling is 50%. Manually underwritten loans run lower, at 36% or 45%, with reserve and score factors. Subject to lender guidelines and full file review, the wholesale conventional programs start at a 620 decision score.
Paying off debts at closing helps your debt-to-income ratio, because those monthly payments drop out. The larger mortgage payment replaces them. A lender may also count a debt that still has payments left if it affects your ability to pay. The underwriter decides.
The seasoning rules are firm. Fannie Mae’s cash-out refinance guide says the first mortgage being paid off must be at least 12 months old, measured note date to note date. At least one borrower must have been on title for six months before the new loan is disbursed. Delayed financing, inheritance and legal-award cases are named exceptions.
Freddie Mac’s Guide Section 4301.5 adds that on a primary residence, all borrowers must occupy the home. Cash-out proceeds carry no specific restrictions on use. A home owned free and clear is treated as cash-out too.
Government loans work differently. The FHA Streamline and the VA IRRRL are for lowering the cost of an existing FHA or VA loan. They are not routes for paying off auto or personal loans. FHA and VA cash-out refinances exist, and each has its own caps and fees. Those figures vary by program, so ask for them in a file review.
One last mechanical point. Request payoff statements for each debt. Interest keeps accruing between the quote date and the payoff date, and the lender uses a per-diem amount. Check the old loan’s terms for a payoff penalty before you commit.
On taxes: tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
Key Terms Defined
Cash-out refinance: A new, larger first mortgage that pays off the old one and puts extra cash in your hands or toward other debts.
Rate-and-term refinance: A refinance that changes the interest rate or loan length without paying off non-mortgage debts. Agencies call it limited cash-out.
LTV (loan-to-value): The loan balance divided by the home’s appraised value. An 80% LTV means the loan is four-fifths of value. Each figure is subject to lender guidelines and a complete review of property type, leverage, and credit.
Seasoning: The waiting period a lender requires, such as how long you have owned the home or held the loan being paid.
Unsecured debt: Debt with no collateral behind it, like most personal loans.
Per-diem interest: Interest that accrues each day on a debt between the payoff quote and the day it is actually paid.
Frequently Asked Questions
Can I include my car loan if it’s almost paid off?
You can, but it rarely pays. The monthly relief is small, and you would spread a few remaining payments over a mortgage term. You also pay closing costs on that slice of the new loan. Most borrowers do better paying the last few payments as scheduled.
Will rolling debt into my mortgage raise my credit score?
Maybe, but nobody can promise it. Paying off revolving balances can lower your utilization. A new mortgage also brings an inquiry and a new account. The effect varies by file, so treat any score gain as a possible side effect, not the goal.
Does a cash-out refinance get easier approval than a personal loan?
Not by rule. The agencies do not carve out a debt-consolidation exception, so the usual equity, credit, seasoning and income tests apply. Removing monthly debts can improve your ratio. Subject to lender guidelines, the underwriter makes the final call after reviewing the whole file.
Is a HELOC or home equity loan a better way to consolidate?
It can be, if your current first mortgage is one you want to keep. Those products leave the first mortgage in place, while a cash-out refinance replaces it. Both put your home on the line. Compare the new payment, the term, the costs and what you give up.
What if I’m using my home as a second home or rental?
Occupancy decides the leverage. A conventional cash-out on a one-unit principal residence reaches 80% LTV. Second homes and investment property are held to 75%, and Freddie Mac requires all borrowers to occupy a primary residence cash-out. Leverage, reserves, and pricing vary by lender and program; the final terms follow the full file review.
Next Step
If you are weighing a cash-out refinance against keeping the loan you have, Lendmire can help you compare the programs and the equity each one reaches. Every program figure here is subject to lender guidelines and a full file review, and nothing here is a commitment to lend.
The question to settle before any application is simple. Are you trying to lower your payment, or lower what the debt costs you in total? The answer usually decides whether the loan fits.
For your own numbers, request a scenario review with Lendmire.
For current guidelines and terms, see Lendmire’s refinance programs page.
About Lendmire
Lendmire (NMLS# 2371349) is a mortgage broker licensed for consumer lending in 16 states. Lendmire arranges FHA, VA, conventional and jumbo purchase and refinance loans through wholesale lenders; every file is underwritten by the lender under the applicable program guidelines. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. Fannie Mae Selling Guide B2-1.3-02, Limited Cash-Out Refinance Transactions
2. CFPB, Cash-Out Refinances and Paydown Behavior of Non-Mortgage Debt Balances
3. Fannie Mae Selling Guide B2-1.3-03, Cash-Out Refinance Transactions
4. Freddie Mac Guide Section 4301.5, Cash-Out Refinance Mortgages
This article is part of Lendmire’s Refinance series — every loan program’s qualification details, guidelines, and scenarios live on the loan options page.
Related reading: Is a Cash-Out Refinance Worth It for a Small Sum? · How Much More a Cash-Out Refinance Costs on a Condo · Can You Use a Cash-Out Refinance to Renovate a Condo?
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Legal disclosures. Lendmire (NMLS# 2371349) is a state-licensed mortgage brokerage that arranges financing through wholesale lender relationships. Lendmire is not a direct lender, depository institution, or registered financial advisor. The discussion above is general informational content about real estate financing — it is not financial, legal, or tax advice, and readers should consult licensed professionals for guidance on their individual circumstances. Loan inquiries are subject to lender underwriting; this article does not represent a commitment to lend. Loan terms, rates, and qualification standards vary by borrower, property, and state, and are subject to change at any time. Equal Housing Opportunity. NMLS Consumer Access: nmlsconsumeraccess.org.