Before refinancing a home, an individual should consider his financial goals, whether he has equity in the home, whether he has a good credit score, and the length of time he wishes to stay in the home. The individual should also consider whether he has second mortgage and the terms of the current loan, according to Fox Business.
To qualify for a new loan, individuals need to have at least 20 percent equity in their current home. People with less than 20 percent equity may still qualify for a loan but have to pay private mortgage insurance, which undermines the benefits of the refinance, explains Fox Business. Borrowers with credit scores above 720 obtain the best mortgage rates, while those with credit scores below 620 may not qualify for mortgages at any rate.
Homeowners who plan to stay in a refinanced home for five or more years often realize savings that outweigh the refinancing costs, notes Fox Business. Long-term owners who have almost completed paying off their mortgages prefer not to refinance because of the associated costs. People with income concerns should seek refinance options with the lowest payment options in case they lose their sources of incomes. Borrowers with a second mortgage may complicate their financial standing with a refinance.