Despite what you may have heard, bad credit refinancing of a home mortgage is still attainable. Borrowers with a less than sterling credit history can still secure a refinanced mortgage with reasonable interest rates.
You may not be able to get a decent credit card (unsecured debt), but banks will still loan money on collateral, in this case, a house, which is secured debt. Their risk is limited since they can take possession of the home if the borrower fails to make regular payments. While most lenders are cautious about lending to those with a blemished credit history, if the borrower is not underwater (owing more than their house is worth) on the current mortgage, securing a refinanced mortgage at a better rate is achievable. This is absolutely NOT the time, however, to use your house as an ATM machine. That new car, plasma TV, and other frivolous consumer purchases can wait. In fact, most banks won’t even allow it, in this economy.
Deciding whether or not refinancing is a good move whether you have good credit or bad credit, is based on the current mortgage interest rate. If the plan is to stay in your house longer than three years, chances are a bad credit refinance will be beneficial. It generally takes about 4-6 years to recoup the refinance fees, (usually around $2000-$3000.) The savings on a lower interest rate mortgage will return those fees over time, along with a lower monthly payment. For instance, lowering a 6.5% 30-year fixed by just ½% will save thousands over the lifetime of the loan.
Before taking the plunge into refinancing a home mortgage, do some homework. There are free online mortgage calculators to help figure monthly payments and interest savings and compare types of loans.
Bear in mind that the loan payment amount does not include taxes and insurance. Ask a potential lender what a PITI payment (principal, interest, taxes, and insurance) would be for the amount you want to refinance. Be sure to leave wiggle room in the budget. A $1,200 payment this year could be a $1,300 payment next year.
Most lenders will require homeowners and mortgage insurance, especially with damaged credit. Don’t take the default homeowners insurance from the lender. It’s almost always more expensive than what you can find on your own.
Most of all be optimistic. Creative thinking and perseverance can prevail in any economy. Don’t be discouraged from investigating a bad credit refinancing. In the end, it could be the best move you ever made.
