Refinancing Mortgage with Cash Out

[Anonymous]

We are in the process of refinancing our mortgage.  The house is worth $265,000, but we only owe $98,000.  We owe $17,000 in unsecured debt.  We have a $19,000 personal loan and owe $4,900 on a car payment.  We have about $16,000 to put towards something or keep in savings.  Our question is: Do we take this $16,000 and pay almost all unsecured credit cards off or keep it?  FICO score is 718 right now, but the simulator shows that if we paid off this $17,000 unsecured debt off, our score would rise 55 points.  We are wanting to apply quickly but if it is beneficial to pay down on all of this debt, we can probably wait another month to apply.  In the end, we will either pay the $17,000 off with the refinance or pay it off before the refinance.  Any tips?

[CreditInspired]

Hi and welcome to MyFICO

Since no one has come along, I’ll try to take a stab at what you’re planning. First a few questions.

Are you planning to refinance for home improvements or just to pay off debt?

Are your plans to pay off the entire $41K (CCs, loan & car) or a portion thereof?

If your goal is to be in a better FICO position for the lowest APR on the refinance, IMHO, I would put the $16K on the CCs. Then, when you refinance, you could replenish your savings acct.

Hopefully, others will come along with more suggestions.

[Revelate]

Generally speaking I'm of the opinion that a HELOC is a cheaper and therefore better way to access equity in a house assuming talking personal finances.

Anyway it depends what your trimerge scores are currently (740+ you'll be fine regardless for example and the simulators are all FICO 8 which isn't used for mortgage underwriting) and what the pattern of revolving utilization is: 17k for some people might not have that much FICO impact TBH.

If you want a better answer, post all your revolving tradelines in balance / limit format, and someone can give advice on strategically paying down to improve one's scores.