Capital sources: Refinancing

By refinancing your mortgage, or securing a new loan in order to pay off the existing one, you can potentially save thousands a year in mortgage payments, thus increasing cash flow for your business. You can also draw some of the cash from the equity you have built up and use that cash in your business. Before you refinance, though, there are a number of cost factors to consider.

Closing costs
You can count on as much as 2 percent or 3 percent of the new loan amount in closing fees. Make sure you get a good-faith estimate of these fees from your lender. To make refinancing worthwhile, your closing costs should be able to be recovered over the life of the new loan.

To decide if it's worth it for you to refinance, divide the closing cost by the number of months you plan to own your home. Add the result to the new monthly principal and interest payment. If the amount is less than your current mortgage payment, you should consider refinancing.

Points
If you plan to "cash out" some of the equity when you refinance, add up not just the closing costs, but also the points you will pay up front for a lower rate and the money associated with paying off your existing loan.

Loan modification by your existing lender is another option that may be available if you have good credit and your institution has not sold your loan to a secondary market. Thrift institutions, such as savings & loans or savings banks, historically have held onto their loans. Since closing costs such as title insurance and mortgage filing fees may not be required in a modification, you may pay your lender less and still get reduced payments.