Refinance: Help for an Aging House

When you're on a tight budget, it's natural to put off expensive home repairs. Just don't wait until the roof caves in. A mortgage refinance may be the solution that gets your home back to working order.

If you own an older home, you can probably relate to the words of Queenie in Jerome Kern's musical Show Boat: "The chimney's smokin', the roof is leakin' in." There's no doubt that a home in disrepair takes a toll on your nerves and your bank account. If you're short on funds, a mortgage refinance might help you fix those leaks and cracks before things get worse.

Basics of refinancing

A mortgage refinance can be an economical way to free up the money you need for home improvement. Compared to other types of borrowing, first mortgages carry relatively low interest rates. Refinances are also relatively easy to get, depending on how much money you need and the quality of your credit history.

The process works like this: You'd take out a new, larger loan, and pay off your existing mortgage. The funds left over after the payoff are yours to use as you wish. The amount of money available to you depends on:

• The value of your home
• The balance of your existing mortgage
• What size monthly payment you can afford

To demonstrate, let's assume your home is worth $500,000, and the balance of your existing mortgage is $250,000. Lenders typically offer the best rates for mortgages that do not exceed 80 percent of the home's value. This limits available funds to $400,000 in the example that we're using. After subtracting the old loan balance of $250,000, you're left with $150,000. If you can afford the monthly payment on a $400,000 loan, you would have roughly $150,000 to spend on home improvement.

Where to begin

If you don't know the value of your home, find out. You can obtain a free market valuation online or from a local realtor. The lender will require a written appraisal later in the process, but knowing the numbers early can help you budget and prioritize your improvement projects. Remember to account for closing costs and set aside a little for unexpected expenses. You can then start shopping around for the best rate on your new loan. At the very least, check with your existing lender, your banker, and online lending sites.

There are a few benefits to funding home improvement projects with a refinance. For one, the larger loan amount will provide you with a bigger tax deduction. You'll also be increasing the value of your home, which, in turn, increases your equity. Lastly, eliminating nagging problems around the house will probably lower your stress level and improve your quality of life. And that just may inspire you to sing a few bars of your own.

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Help Manage Debt with a Mortgage Refinance

The creative use of mortgage refinancing can be a smart way to consolidate debt and manage consumer purchases and personal finances. By tapping into home equity, you can make interest rates and payment schedules work for you, rather than against you.

A slight adjustment in the interest rate or terms of repayment on your mortgage can drastically affect the overall cost of purchasing a home over time. For that reason, millions of homeowners are refinancing to avoid higher adjustable rates in favor of fixed-rate conventional loans. But mortgages can do much more than simply help buy homes. That's why it's a good idea to regularly review your mortgage and consider refinance options in relation to your overall financial picture. You may find a variety of ways that mortgage refinancing can save you money while offering increased convenience and simplicity.

Mortgage refinance vs. credit card debt

Mortgages are secured by real estate, so their corresponding interest rates are typically much lower than other kinds of consumer financing or credit card debt. Unlike other consumer loans, mortgage payments also offer solid tax deductions. Next time you need to fund a big expense, like the purchase of a car, a family vacation, or a wedding, consider using a cash-out mortgage refinance to foot the bill. Another compelling benefit of moving debt into a mortgage refinance package is that you can spread your payback period out over a longer period of time. This takes pressure off your monthly income by putting your home equity to work to leverage your borrowing power.

One bill only

One of the prime considerations when looking for ways to reduce your debt is the burden of costs that are directly or indirectly related to servicing that debt. Banks and credit card companies, for example, are becoming increasingly aggressive about adding miscellaneous fees and service charges to customer accounts, while simultaneously cutting back on the quality of their customer service. All of these factors contribute to the overall cost of consumer debt. If you're looking for ways to improve your financial picture, be sure to look at the whole picture, not just a snapshot or thumbnail sketch of your outstanding balances and current rates.

If your bank or mortgage company provides good customer service, you can transfer all your other consumer debts to them through a cash-out mortgage refinance and end up with a single account to manage. Your time is valuable, and wasting it while dealing with unresponsive customer service departments costs you money and peace of mind.

Even if you're unhappy with how your current mortgage company treats you-if their phone is always busy when you call, for instance, or if they fail to adequately answer your questions-you can do something about that, too. Just refinance your mortgage with a lender who really deserves your business. You'll save money and consolidate your finances, all in one easy step.

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