Is a cash-out refinance of my home a terrible idea to pay off debt?

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But if we just sell the house, I take the money we made from the sale and use some on my debt, wouldn't that be taxed heavier than a refinance to pay off debt?

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It depends on how long you owned and lived in the home before the sale and how much profit you made. If you owned and lived in the place for two of the five years before the sale, then up to $250,000 of profit is tax-free.

If you are married and file a joint return, the tax-free amount doubles to $500,000. The law lets you "exclude" this much otherwise taxable profit from your taxable income. (If you sold for a loss, though, you can't take a deduction for that loss.)

You can use this exclusion every time you sell a primary residence, as long as you owned and lived in it for two of the five years leading up to the sale, and haven't claimed the exclusion on another home in the last two years.

If your profit exceeds the $250,000 or $500,000 limit, the excess is reported as a capital gain on Schedule D.

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Your cash-out refi rate is going to be higher than a conventional mortgage rate.

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Its permanent. This was our deal all along. I just finished my MBA, have put in 7 years at my industry leading company to build a resume, and should be able to substantially increase my salary in the next few years so she can be a stay-at-home mom.

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