Tips For Refinancing Your Mortgage With Bad Credit
Have you recently considered refinancing your home mortgage but felt
that your bad credit score would prevent you from doing so? This is a
common misconception that many borrowers possess. While having bad
credit does impact the loan application process and will affect the
interest rates that a lender offers, if you have a home, getting a
refinance loan is still possible, even with bad credit. The trick is
knowing your options and understanding the long-term implications of
refinancing your mortgage with bad credit.
Why Does Credit Matter?
When you have bad credit, it is really common to get frustrated with the
seemingly unfair emphasis placed on credit when trying to get a loan.
“Why does credit matter so much?” you may ask. The answer to this
question is complicated, however, but less so when you are discussing a
refinance loan.
In the lending world, your FICO score, often just called “credit score”
is determined by a number of factors related to past financial activity.
When a lender considers giving you a loan, he needs to assess your
ability to repay that loan on time and credit score is seen as an
indication of that ability. However, in the case of a home mortgage
refinance loan, the value of your home can also play into a lender’s
willingness to give you a loan. Basically, should you fail to pay your
mortgage, the lender can take your home and not have a total loss.
Finding the Right Refinance Lender
When you have decided that you need to refinance your current mortgage
loan, finding the right lender who works with bad credit can be a tricky
task. Thankfully, the internet has opened up the loan market for
borrowers, allowing them to reach out to several lenders for quotes. The
internet also provides you with the tools you need to assess the
lenders you choose and determine if they are the types of lenders who
are worth your business.
When evaluating online mortgage refinance loans, it is therefore
important to develop a list of several lenders. Then, you can compare
the interest rates and other details of several loans in order to find
one that works best for your budget and needs. Make sure that you look
at all the options available to you, including lenders who work with
sub-prime loans. These may be the best alternative for bad credit.
Refinance Loans: The After Effects
Once you have looked at the options for taking out a refinance loan, you
may realize that the interest rate you are paying are less-than-ideal
because of your bad credit. However, the process of refinancing your
mortgage can still be of benefit since, even with a higher rate of
interest, refinance loans can lower your monthly payment. This is
because the term of the refinance loan will be longer than what remained
on your original mortgage.
Even though the interest rates you are paying may not be the best
because of your bad credit, the process of refinancing your mortgage can
help you improve your credit in the long run, since the lowered monthly
payment will free up more cash for other bills. Then, once you have
spent some time repaying your refinanced mortgage, you can refinance
again for a lower interest rate, since your bad credit will be a thing
of the past.
