When it comes to refinancing a mortgage, the state of the economy or real estate market have little to do with a borrower's decision. Borrowers decide to refinance for a multitude of reasons, some that are good and some that are bad. It really does not matter what everyone else is doing, it should only matter to know if a refinance is right for you.

When economic conditions are healthy and real estate values are high, most people will refinance their existing mortgage in order to take the equity from their home in the form of cash out. The cash can be used for a multitude of reasons such as home improvements, college or even to pay off other debt such as credit cards or automobile loans. Some will even use the money to invest in high yield markets or just keep in savings for a rainy day. For some people, when times are good, refinancing a current mortgage becomes a habit that they will repeat very often. This can become a dangerous cycle since the home, which is the main asset, never gets paid off.

The best reason to refinance an existing mortgage is to take advantage of a reduction in mortgage rates. In order to recognize the most money in savings, there should be a two percent reduction in the rate. Many times when mortgage rates are low, existing borrowers can reduce the term of their mortgage instead so that it is paid off in a quicker amount of time. When going from a high mortgage rate to a lower mortgage rate, a loan term reduction will often result in a similar monthly mortgage payment. Again, the benefit to this is that the equity in the home increases faster and the mortgage is paid off in a shorter period.

Since housing is probably the most expensive bill that most people pay, it is not a bad idea to pay off the mortgage as soon as possible. In the end, there will be more available cash each month when this bill no longer exist. For many people, especially those nearing retirement, this is a cost effective method to financial planning. This is why refinancing a mortgage for the right reason is very important.