| Get
Your
Hands
on
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.
|
Refinance
Considerations
When
you're
making
your
decision,
there
are
several
things
in mind.
First,
even a
small
rate cut
can pay
off
quickly.
That's
because
you can
easily
find
mortgage
companies
willing
to waive
routine
refinancing
charges
such as
application,
appraisal
and
legal
fees
(which
can add
up to
$1,500
to
$3,000).
Of
course,
in
exchange
for low
or no up
front
costs,
you'll
have to
be
willing
to
accept a
rate
that's
somewhat
higher
than the
prevailing
rock
bottom.
Second,
if you
are
planning
to stay
in your
home for
at least
three to
five
years,
it may
make
sense to
pay
"points"
(a point
equals
1% of
the loan
amount)
and
closing
costs to
get the
lowest
available
rate.
And
third,
you can
avoid
laying
out cash
and
still
get a
low rate
by
adding
the
points
and
closing
costs to
your new
mortgage.
Does
that
mean
shouldering
a lot of
extra
debt?
Not
necessarily.
If
you've
had your
current
mortgage
for at
least
three
years,
you've
probably
reduced
your
balance
by
several
thousand
dollars.
So you
may be
able to
tack
your
closing
costs
onto
your new
loan and
still
end up
with a
mortgage
that's
smaller
than
your
original
one --
plus, of
course,
a lower
rate and
lower
monthly
payment.
Deciding
To
Refinance
Traditionally,
the
decision
on
whether
or not
to
refinance
has
meant
balancing
the
savings
of a
lower
monthly
payment
against
the
costs of
refinancing.
But in
recent
years,
companies
have
introduced
"no
cost"
and
lowcost
refinancing
packages
that
minimize
or
completely
eliminate
the
out-of-pocket
expenses
of
refinancing.
(These
refinancing
packages
compensate
with a
higher
interest
rate, or
by
including
some of
the
costs in
the
amount
that is
financed.)
With
traditional
refinancing,
the most
often
cited
rule of
thumb is
that the
interest
rate for
your new
mortgage
must be
about 2
percentage
points
below
the rate
of your
current
mortgage
for
refinancing
to make
sense.
However,
with the
newer
low and
no cost
refinancing
programs,
it can
be worth
your
while to
refinance
to
obtain a
smaller
reduction
in
interest
rates.
How
long you
expect
to stay
in your
home is
also a
factor
to
consider.
If
you'll
be
moving
in a few
years,
the
month to
month
savings
may
never
add up
to the
costs
that are
involved
in a
refinancing.
Mortgage
Refinance
Costs
When
you
refinance
your
mortgage,
you
usually
pay off
your
original
mortgage
and sign
a new
loan.
With a
new
loan,
you
again
pay most
of the
same
costs
you paid
to get
your
original
mortgage.
These
can
include
settlement
costs,
discount
points,
and
other
fees.
You also
may be
charged
a
penalty
for
paying
off your
original
loan
early,
although
some
states
prohibit
this.
The
total
expense
for
refinancing
a
mortgage
depends
on the
interest
rate,
number
of
points,
and
other
costs
required
to
obtain a
loan. To
obtain
the
lowest
rate
offered,
most
mortgage
companies
will
charge
several
points,
and the
total
cost can
run
between
three
and six
percent
of the
total
amount
you
borrow.
So, for
example,
on a
$100,000
mortgage,
the
company
might
charge
you
between
$3,000
and
$6,000.
However,
some
companies
may
offer
zero
points
at a
higher
interest
rate,
which
may
significantly
reduce
your
initial
costs,
although
your
payments
may be
somewhat
higher.
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