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One way to make a VA mortgage 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 jargon. 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 a 7.5% mortgage rate, your additional monthly payment would total only $175, so you would come out $505 ahead ($680-$175=$505). Of course, all the extra cash need not go for paying off debts. When the Menards swapped their ARM (adjusted rate mortgage) 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. Nathan Toler is Vice-President of Internet Operations for Sharp Mortgage Group, a zero-down home mortgage specialist. Click here for more about VA home loans and VA mortgage refinances. |
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