Q: My husband and I are in the process of separating, and in looking at my finances, I’m afraid I won’t be able to pay all of the bills by myself. I want to move, but I’m worried that it will take too long to sell the house, and that will throw me into a bad spot financially.

I have two loans. The first, at 5.3 percent is a 15-year mortgage, and we’re 7 years into it. The second mortgage is 7.8 percent, and we’re 2 years into a 15-year.

Should I refinance now? I know that once I put the house on the market, I won’t be able to refinance. My credit score is 784 and I have at least $40,000 in equity. I also have a car payment and two credit cards that have a balance.

My credit union has offered me a 15-year mortgage at 4.8 percent, and a 30-year mortgage at 5 percent, but the fees would be $5,200. With the new payments, and cashing out $12,000 to pay off other debt, I’ll save $1,500 per month. I’ll pay off the cost of the refinance in 4 months.

A: It sounds as though refinancing is a great option for you right now. You’ll pay off your other debt, and the fees that your credit union wants to charge you seem reasonable to me, considering that lenders across the country have jacked up the fees to refinance.

The key to determining what the fees are is to break them down into the bank expenses, third party expenses and then expenses that benefit you. Those expenses that benefit you are prepaid interest and escrows. Prepaid interest is interest that you would have paid anyway on the loan and shouldn’t be considered a cost of closing the loan. Escrow expenses shouldn’t be counted either as an expense as those funds benefit you later to pay your real estate taxes and homeowner’s insurance policy.

If, as part of the $5,200 in fees you’ve been quoted, the bank fees and third party fees are only $2,000 or less, great. Then you need to understand whether the other $3,200 in fees are escrow fees or prepaid interest costs. If they are, you’re done. It’s a good deal.

If not, then you must determine what the additional money is for. Are you paying points to buy down the rate on the loans? If you are buying the rate down, you may benefit from the lower rate for years to come.

You just need to understand the fees and costs before moving forward with the loan. If you understand the fees and expenses, you can compare this loan with any other loan offered by another lender.

To go back to your primary concern, even if the house isn’t a long-term option for you, you’re right to worry about how long it might take to sell in this current market. If you can wait it out, but manage to structure your debt so it’s affordable, that’s a win-win scenario in my book.

But if you’re going to refinance, and you can’t qualify on your own, be sure to do it before you divorce.

April 16, 2009