Cash out from a mortgage refinance is tax-free since it's not income, but rather it's loan proceeds.

Many people take cash out of their home equity to consolidate high interest rate credit card debt. Credit cards often have interest rates of over 20% and none of this interest is tax deductible. Interest paid on the mortgage of your primary residence is tax deductible so the over all savings is often from more than just a lower, stable interest rate.

The great majority of refinances are cash out refinances to consolidate debt. Many borrowers find that a debt consolidation refinance can actually save them several hundred dollars a month in total payments. For those people with little extra money to spare every month, this can bring a great deal of relief.