It's Your Money: risks and rewards of refinancing - WKOW 27: Madison, WI Breaking News, Weather and Sports

It's Your Money: risks and rewards of refinancing

MADISON (WKOW) -- As a result of the mortgage and credit crisis, many lenders are getting federal money to help homeowners. That, and lower interest rates, are making refinancing a tempting move.

If you're trying to refinance to get a fixed rate or a lower interest rate, it may make sense and it's worth shopping around. But UW Financial Specialist Michael Collins also says there's much more than interest rates to consider when it comes to refinancing your mortgage.

"One, you want to look at your up front cost; application fees, what you have to pay out of pocket at the time of the closing. Second, what's your monthly payment going to be relative to your current monthly payment."

But it doesn't necessarily stop at the bottom line. A lower monthly payment may be a short term gain, but remember, a re-fi is a new loan, so you're starting over with the mortgage.

"If you're more than five or six years into your existing mortgage, it may not make sense to go into a new mortgage, because you've just pushed yourself another 30 years out on your mortgage ... and certainly, if you're more than 10 or 15 years into a 30 year loan, refinancing, even if your interest rate were considerably lower, probably doesn't make a lot of sense." also suggests steps to make a refi work for you: Weigh the pros and cons of the interest rate and term items we just mentioned. Check your credit score; if it's not high enough, you won't get the best interest rate.

And once that's okay, make sure you shop around for lenders, and be sure to factor in those closing costs in addition to the interest rate they offer.

Finally, Collins warns against a re-fi as a way to cover your expenses.

"I think if you're looking to take equity out of your house because you need money to spend, be real careful about refinancing these cash-out re-fis."

Lending firms typically offer "no-cost" refinancing. But there's no such thing as a free loan. With a no-cost refinance, lenders usually charge a slightly higher interest rate and roll the costs into that higher rate charge.

Alternatively, borrowers often can tack closing costs on to the mortgage amount they seek.

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