Does refinancing at a higher rate ever make sense?

Though it seems counter-intuitive, there are some situations in which refinancing at a higher interest rate does make sense.

If the term left on your existing mortgage is short, refinancing at a higher rate can reduce your monthly payments by stretching the payments out over a longer period of time. This is a good option for someone who has a short term left on his or her mortgage and experiences a sudden drop in income. Though you'd be paying a bit more in interest, you could get a lower monthly payment that will fit better into your new budget.

Some people believe, and some mortgage reps will try to convince you, that it's smart to refinance at a higher interest rate if the dollar amount you pay in interest is lower. Though this may seem smart, don't fall for it. The only way you can pay a higher interest rate and pay less in interest is if your loan amount is smaller. Which means you're paying more to get less. In other words, instead of a ,000 at 5%, you're getting a ,000 loan at 6%.

The only other time it makes sense to refinance at a higher rate is if you have a financial emergency and a "cash-out" refinance is the only way to get the money you need.