Americans Hocking Houses to the Hilt.

A startling new study said American homeowners are in the process of rewriting the traditional rules of refinancing: Rather than getting a new mortgage at a lower interest rate, they are taking out larger loans at rates slightly higher than what they were paying before.

The study was performed by MGIC Capital Markets Group, a division of Mortgage Guaranty Insurance Corp., the country's largest home loan insurer. Included in the multi-lender database was a representative sample of conventional, FHA-VA and other mortgage refinance transactions from all regions of the country.

Though the findings may seem surprising, MGIC researchers said the study documents that American families increasingly are using home equity to manage other forms of consumer debt -- particularly credit cards, auto loans, department store charges, and second and third mortgages.

Michael Zimmerman, MGIC vice president for mortgage banking strategies, said homeowners are using today's relatively low mortgage rates to consolidate their installment debts into a single tax-deductible monthly payment.

They are "lowering their overall... debt payment," he said, even though they "may actually be taking on a higher-rate first mortgage." They are willing to do so because their bottom-line out-of-pocket cost on the new loan is still considerably less than what they'd be paying on their combined credit card balances, auto loans and assorted other installment debts plus their prior mortgage. According to the study, a surprising number of borrowers -- 15 percent -- who weren't paying PMI before refinancing ended up with it after the refinancing.

Is hocking your house to the hilt via debt-consolidation refinancing the way to, go for you? The traditional, advice here would be to avoid heavy debt on your house because you could lose, your most important asset in an economic downturn.

Kenneth Harney