Home refinance need opinions

With the housing market sky rocketing our home value has went up. After talking to our lender we are thinking about refinancing and taking out escrow. We are looking at taking out 40k in cash to pay off debt and home improvements. Our mortgage will raise by about 300$ BUT after paying off all debt we will save 300$ monthly. The only kicker is our interest rate will double to 6% ….. after paying off debt we will have about 20k for home improvements. What would you do?