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Another option 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. 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).
What are the benefits?
The potential benefit of the refinance is that you can use the money (
depending you the cost of your house ) borrowed for credit cards, car loans
payment to make the saving as stated above.
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