Why you should NEVER refinance your mortgage, but if you do.....

It amazes me how many supposedly expert fiancial talking heads write how refinancing "saves" people money.  If there was any piece of false financial advice, this is it.

If you took out a thirty year mortgage and five years later decided to refinance with a two percent or more lower rate, the standard advice is to run as fast as you can to take advantage of the lower rate and lower your monthly payment. This isn't "saving money, it it simply lowering your monthly payment and there is a huge difference.

Let's assume that your monthly payment is $1,000 and your new payment after refinancing is $800.00.  Most people would jump at this opportunity.  What they fail to take into consideration is that mortgage payment are interest only in the first few years, so after 5 years of paying your mortgage, $1,000 x12x5 is almost $60,000 in interest paid to the bank.  Most refinancing consisits of people taking out another thirty year mortgage.  The breakeven that the banker insists is the $200.00 monthly savings is a lie.  The breakeven is the $60,000 you already paid the bank and now are starting all over!  Using the $200.00 monthly savings as a barometer, it will take you 25 years to just break even!

Unfortunately, most people get themselves into such financial hardships that the $200.00 monthly savings blinds them to long term stability.  The best advice is to pay that mortgage off as soon as possible, forget the tax deduction, it is designed to keep you broke!

But if you do decide to refinance, go from a thirty year mortgage to a fifteen year one.  This might even raise your monthly payment a few dollars but you will have economic freedom and save hundreds of thousands and that is true savings.