I don't want your expertise, I know everything because I saw it on the Internet!

You would not believe how true the title of this post is. I hear from dozens of people from all walks of life and every state each day. And every day it is the same story. "I know that interest rates are dramatically lower than where YOU have me at. If you can not GIVE me a better rate then I will refinance with somebody else." There are so many things wrong with this statement, that it is hard to know where to begin.

The major problem as I see it, is that most Americans have received their financial education from TV, the Internet, friends, or their family. The last two are the most dangerous. Why? Because more often than not, these people are no brighter than the one they are giving the advice too. Before I went to college for a business degree, the only financial courses available in the public school system were in the form of electives. I do not understand how an education policy maker thinks that I will not survive in the world without reading Beowulf, but I will be just fine not knowing how to balance a checking account, understanding the fundamentals of a credit score, or the difference between simple and compounding interest!

So, here is my public service for the day. Let us say that you purchased a house in 2005 for $200,000. You were unlike many people and put 20% down, so your new mortgage is $160,000. The interest rate you received was 6.00% on a 30 year fixed mortgage. At that time you did not pay any discount points and your total closing costs were $2,500. Your monthly principal & interest payment is $959.28.

You are being a good borrower and paying your mortgage down, and then you go on the Internet in 2007. You see that interest rates "are at an all time low", and you know that you have to refinance because you will save money. So, you refinance into a new 30 year fixed mortgage at 5.0%. Your balance at that time is down to $155,949.51. The closing costs on the refinance will be another $2,500. You decide to roll these costs back into the loan because the new payment will still be lower. Your new mortgage is now $158,449.51 and your new principal and interest payment is $850.59. You think you got a good deal and life goes on.

Now, it is 2010 and "rates are at an all time low". So, you decide to check out your options. The thought of a 15 year fixed sounds nice, but your lifestyle will not allow for such a large payment. The loan officer said that they can get you 4.5% on a 30 year mortgage with a reduced $1,500 in total closing costs. The question: do you do it? Now, before you answer, I have one additional piece of information. Your family is growing and you think you will need to move in 5 years to a bigger home. Most people would say yes because the payment will once again decrease to $773.06. This will allow them to pay down other bills and save for a bigger home. True, but at what cost?

Let's say in 5 years you move and sell this home for $225,000 and you did decide to refinance the second time. Your payoff mortgage balance is $139,080.83. At this point, you have paid $88,303.69 in interest and fees since 2005! Now if you did not refinance the second time, your balance would be $136,033.63. Your interest and fees paid would be $83,312.69.

What does this tell us? Refinancing is not something that should be done too many times. The more you refinance the less the benefit will be. In this example the 2nd refi caused you to pay 5 thousand more in interest and still owe 3 thousand more and the balance.

Before you think about refinancing, get off the Internet!!!!! Ask yourself, how long will I be in this home? How much have I already paid in interest and fees? Be honest. The only person that you hurt is yourself by listening to other people who are saying "you need to lower your rate".