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Lower payment is top reason to refinance

Last week 72 percent of the conventional loans processed by mortgage bankers were for refinancing. That's approaching the all-time high of 76.8 percent set in January 1992, the Mortgage Bankers Association said.

If you're an old hand at refinancing, you're probably among those who already have taken the plunge. But if this will be your first time, consumer adviser Dan Lieberman says, make sure you think through the decision before acting.Lieberman, director of Mirada Home Strategies in Oakland, Calif., cites several reasons that can make refinancing attractive:

- Lower your monthly costs. This is the reason most people refinance and the savings can be substantial. Reducing a $130,000 mortgage from 8.5 percent to 7.1 percent would cut monthly payments by $126. Sock the extra money away each month and you'll soon have a satisfying kitty.

- Save on interest costs. Many homebuyers are appalled when they first see the truth in lending statement that shows how much interest they would pay if they kept a 30-year mortgage from start to finish. The lower the interest rate, the less interest you pay.

- Build equity more quickly. Lower interest rates also allow you to build equity faster. A mortgage with a 15- or 20-year term will accelerate equity buildup greatly. If you can afford a 10-year mortgage, you'll pay more equity than interest from the start.

- Have stable monthly payments. Many of those refinancing are abandoning adjustable rate mortgages for the safer world of rates that are guaranteed for the life of the mortgage. Fewer than 6 percent of those taking out new mortgages last week were opting for ARMs, the mortgage bankers said.

- Pull cash out for home improvements. If you're paying $999 a month on a $130,000 mortgage at 8.5 percent, you could draw out $18,000 without changing your monthly payment if you could reduce the interest rate to 7.1 percent.

- Consolidate debts. This is probably the worst reason to refinance but not an uncommon one. Mortgage interest is deductible (unless you take the standard deduction) and credit card interest isn't. And you probably can reduce your monthly payments. But this is a slippery slope if you look at those empty credit cards with glee and go on more spending sprees.

If you feel the need for detailed advice on refinancing, Mirada offers a 32-page booklet "The Insider's Guide to Refinancing" for $5.95. Send a check along with your name and address to: Mirada Home Strategies, 75 Vernon St., Oakland, CA 94610. Or call for a credit card order: 510-419-0200.