Get Some Cash
Another way to make a refinance work for you is to refinance for more than the balance
remaining on your old mortgage -- in effect, tapping your home equity, or "cashing
out," in mortgage speak. Thanks to favorable rates, you may be able to do so without
boosting your monthly outlay. For example, at 8.5%, the payment on a $200,000, 30-year
fixed-rate mortgage is $1,538. But at 7.5%, that same payment lets you borrow nearly
$20,000 more.
The best use for the extra cash is to pay off any higher-rate loans you may have. Let's
say that you are carrying a $15,000 car loan at 10% and making minimum payments on a
$10,000 credit-card balance at 17%. Your monthly
payments on those debts would total $680. Then assume you refinanced your mortgage, taking
out an additional $25,000 to pay off your car and credit-card loans. Result: At 7.5%, your
additional monthly mortgage payment would total only $175, so you would come out $505
ahead ($680-$175=$505).
Of course, all the extra cash needn't go for paying off debts. When the Menards swapped
their ARM for a fixed-rate last December, they also increased their mortgage load by
$34,000, from $106,000 to $140,000. They used $3,000 of the proceeds to pay their
refinancing costs and another $17,000 to pay off a 10% home-equity loan, which had been
costing them $250 a month. Then they spent the remaining $14,000 to build a garage for
Roger's antique-car collection -- and they did all this for just another $19 a month.
One warning: When you decide to increase the size of your mortgage significantly, remember
that if you default on that loan you can lose your home. So be sure you don't spend the
money frivolously or increase your overall debt load by running up your credit-card
balances again.
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REFINANCE
Refinance Considerations
Refinance Once, Then Do It Again
Build Home Equity Faster
Get Your Hands on Some Cash
Trade your ARM for Fixed Rates
Mortgage Refinance Costs
Analyze Your Savings
Paying Points For A Lower Rate
Your Personal Income Taxes
Consider Other Mortgage Programs
Deciding To Refinance |
