If you are refinancing your current mortgage and not taking out any equity, refinance makes most sense if you can reduce your monthly payment, and if total amount paid (number of payments multiplied by monthly payment) after refinance is less than total amount to be paid on your current mortgage. If monthly payment is less than your current payment, but overall amount is greater, you must decide if paying less monthly outweighs increased amount you will need to pay. The opposite decision is required if your payment goes up but total amount due decreases. If in either of these situations, care must be taken and returns evaluated carefully to make best decision.

A caveat to above analysis is that amount refinanced must be equal to existing mortgage. If refinance amount exceeds amount currently due on mortgage then a much more complex analysis is needed. For this type of analysis, you will require a spread sheet with present value and amortization calculations. If you are not comfortable with these type of calculations, consult a financial advisor or accountant to assist with quantifying your decision.

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Keep in mind that mortgage lenders are sales people, and mortgage brokers are essentially selling you a product. They make money when they sell you a mortgage. With current emphasis on low finance rates, they are inundated with business, and are more focused with getting loan closed than with evaluating your future ability to pay. As sales people, they have been given a number of products to sell, and because of current frenzy, have been given substantial leeway from banks. Therefore, they can forgo many of risk analyses that were necessary during leaner banking times and sell whatever mortgage product is available.

With mortgage brokers trying to fund all of business that they are given, and with mortgage products that carry high uncertainties, risk associated with purchasing or refinancing is higher than ever. If refinancing or funding a new mortgage is best financial decision for your specific situation, be aware of risks, quantify benefits, and realize that your mortgage lender has a vested interest in closing deal.

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