There are five major reasons to consider refinancing an existing mortgage:

• Decrease monthly payments from a higher fixed rate to a lower fixed rate.
  Example: If the rate is 7.5% now and a homeowner switches to a 6.5% rate, he or she will save 1% on the mortgage less the costs of refinancing. On a $200,000 mortgage, for example, the savings will be over $50,000 over 30 years by reducing the interest rate by just that one percentage point.
• Improve monthly cash flow with lower payments.
  Cash flow may be tight after moving into a new home. Switching to an adjustable rate program where the rate is fixed for the next three to ten years could provide breathing room needed. Similarly, for those who are in a 15 or 20 year term loan, switching to a 30 year term can also increase monthly cash flow.
• Switch to a fixed rate program to eliminate payment changes of adjustable rate mortgages (ARMs). 
  Homeowners with one year ARMs will see their rates rise as rates move up. Using programs that hold rates steady for three, five or seven years, you can refinance into a low fixed rate.
• Withdraw funds from the equity in a home.
  If cash is needed for home improvements, college education or to consolidate debts, the borrower may be able to refinance 75% to 80% of the current value of the home if it has been owned for one year or more.
• Shorter loan terms
  Probably the best incentive to refinance is found by refinancing into a shorter term loan while keeping the loan payment stable. A borrower can save tens of thousands in interest by reducing the term of the loan.

Old Rules No Longer Apply

If interest rates fall below your current mortgage rate, refinancing may be a great idea. The old idea that rates must be 2 full percentage points below your existing loan is not true. A drop of as little as 1/2% could save you thousands of dollars.

A variety of loan terms, no-point rate options and lower closing cost loans have greatly decreased the rate difference needed to make refinancing profitable.

We as consumers spend substantial amounts of time trying to make our savings and investments earn more. One avenue which is sometimes overlooked is seeing how much we can decrease our debt payments. Since a mortgage is usually the largest debt we have, it pays to concentrate most on reducing that payment first.