COLLEGE STATION – It sounds almost as good as winning the lottery – reducing your monthly expenses and keeping more of your hard-earned cash for yourself by refinancing your mortgage.

The idea is tempting. But is it as good as it sounds?

Well, do the math, said an expert from Texas Cooperative Extension.

"You need to figure out what your interest is in refinancing," said Dr. Joyce Cavanagh, Extension family economics specialist.

Do you want to improve your cash flow by lowering your monthly payments? Or do you want to get a large chunk of change to spend on new electronic equipment or jewelry or travel?

"Cashing out equity to so you can pay off other debts – for some people this is a good thing, but so often the problem is people don't re-examine their spending behavior," Cavanagh said. "Eventually they run up credit card debt again and don't have as much equity in their home."

That practice can lead to financial trouble down the road, she said. Cavanagh cited a recent study discussed by Alan Greenspan, chairman of the Federal Reserve System's board of governors. The study found that much of today's consumer spending is being done with equity that has been cashed out of the value of homes.

"The danger of that pattern is, what happens if you lose your job and can't make your mortgage payment?" Cavanagh said. "You could lose your home."

Refinancing isn't for everyone, she warned.

Common financial wisdom has been to use refinancing as a way to get a better interest rate on a mortgage, Cavanagh said.

"In the past, people used the rule of thumb that you shouldn't even consider refinancing unless you could get at least a 2 percent drop in the interest rate," she said. "Now we encourage people to consider the cost of refinancing and how long it will take to recoup those costs. If you don't think you'll be in the house long enough to recoup the closing costs, refinancing probably isn't a good idea. Take your closing costs and divide them by the monthly savings from refinancing to get the number of months it will take to recoup the costs."

After making those calculations, ask yourself: What kinds of savings are you going to get? How long will it take to break even before you recover the closing costs?

"You first have to cover the closing costs before you see any savings," Cavanagh said.

And those closing costs can be hundreds to thousands of dollars, she said.

In its publication, "A Consumer's Guide to Mortgage Refinancing," ( at http://www.pueblo.gsa.gov/ and click on the link to Housing ) the Federal Citizen Information Center in Pueblo, Colo., states that refinancing is similar to taking out the original mortgage. The same costs are involved too. The publication lists common fees charged for refinancing and their estimates. Expect to pay application fees ($75-$300) and title search and title insurance fees ($450-$600). Then you might have to pay appraisal fees ($150-$400), survey costs ($125-$300), homeowner's hazard insurance ($300-$600), lender's attorney's review fees ($75-$200), home inspection fees ($175-$350) and loan origination fees, 1 percent of the loan. And don't forget mortgage insurance (0.5 percent to 1 percent) and points (1 percent to 3 percent).

Confused yet? Cavanagh suggested talking to your mortgage company.

"Check with your current mortgage company to see if they can refinance and not pay all those closing costs," she said. "If your mortgage is fairly new, they might be willing to waive part of the closing costs."

If that doesn't work, shop around. Find out what different companies are offering when it comes to fees and interest rates, Cavanagh said.

Online mortgage companies that advertise on television might offer good deals, but before signing on the dotted line, "check the fine print," she said.

"Online mortgage companies have to comply with the same (regulations) as other mortgage companies," she said. "But don't assume anything (based on) a 30-second advertisement."

Make sure your personal information is current.

"Check your credit report and make sure the information is correct," she said. "What is your credit score? Make sure the information is correct before you apply to refinance so you'll get the most favorable terms."

Use a calculator to help you figure out what your payments will be. For an online calculator, visit The Motley Fool Web site at http://www.fool.com/ and click on the link to Calculators.

"If you decide to refinance and lower your payments, you could make additional principal payments to pay off your mortgage earlier," Cavanagh said. That would also rebuild the amount of equity you have in your house, she added, and reduce the amount of interest you owe.

Refinancing a mortgage can be a daunting undertaking, but for some homeowners, the time and effort is worth it, Cavanagh said.

"If you can get a significantly lower interest rate, (refinancing) is a good idea," she said. "If you can't, then think twice."