September 2, 2008 in Mortgages

Refinance may not solve money problems

Dear Dr. Don,

We have 19 years left on our mortgage but we need to lower the monthly payments. My husband has retired due to illness. I’m still working but there’s less monthly income. I have 11 to12 years yet before I plan on retiring.

We currently owe $197,000 at 6.49 percent on a fixed home equity loan. The home is currently worth about $270,000 in a lousy market. We have about $20,000 in other debt, medical bills and some credit card debt.

Can I refinance and still get some cash out for medical and other bills? Reducing the monthly payment is a must. We currently pay $1,542 and want to lower it to as close to $1,000 as we can. Any advice is appreciated. Our credit is fairly decent.

— Lindsey Loans

Dear Lindsey,

Doing a cash-out refinancing of $217,000 with a 30-year mortgage, assuming the current Bankrate national average of 6.66 percent, will bring your monthly payments down to $1,394.50.

You can use Bankrate’s Mortgage payment calculator to solve for the payment given the interest rate you’re quoted on the refinancing.

The downside to this is that you’ll pay an extra $140,000 in interest over the next 30 years, assuming that you’re in the mortgage for 30 years.

Between the higher interest rate and the increased principal amount, you’re not getting much payment relief in your monthly budget. However, you are paying off the credit card debt and medical bills.

I don’t see refinancing as the answer to your financial problems. I suggest you meet with a fee-only financial planner and work with them on establishing a strategy to repay your current debts without rolling them up into a refinancing. The National Association of Personal Financial Advisors can put you in touch with a fee-only planner in your area.

Bankrate also offers a tool to search for a Certified Financial Planner. However, please keep in mind that this tool does not offer an option to search for fee-only planners.