Individuals with bad credit often assume that it is impossible to
obtain a refinancing or home equity loan. However, this assumption is false.
Because a new mortgage and home equity loan is protected by your home,
mortgage lenders are more eager to offer money. Do not allow bad credit
to stop you from refinancing. By refinancing your home, you may
actually improve your finances and credit.
Refinance Mortgage Loan for Cash-Out Option
If you are hoping to improve your credit, refinancing your home and
obtaining cash at closing is a great alternative. The money you receive
can be used for any purpose. In most cases, homeowners put the money to
good use and payoff old credit card balances, consumer loans, and past
due accounts. Bad credit is typically the result of paying bills late,
missed payments, excessive debt, and unpaid medical and utility
expenses. If you consolidate and lower your debt-to-income ratio, your credit
score will improve.
Lower Monthly Mortgage Payment
Although bad credit justifies a higher interest rate, if you purchased
your home during a time when interest rates were higher than 9 percent,
a refinance may actually lower your rate. While you may not receive a
prime rate of 5 percent, an interest rate reduction of two or three
points will decrease your mortgage. The money you save can be used to pay
bills, which will ultimately improve your credit rating and score.
Convert Adjustable Rate Mortgage to Fixed Rate Mortgage
The biggest reason for refinancing a home loan is to obtain a fixed
rate mortgage. Initially, many homeowners choose an adjustable rate
mortgage because the rates are lower. However, these mortgage rates have the
tendency to increase or decrease. The consequence of rising interest
rates is a rise in mortgage payments. Because fixed mortgage rates are at
a record low, several homeowners with good and bad credit are locking
in at low rates.
Bad Credit Refinancing Lenders
Traditional mortgage lenders rarely offer refinancing loans to bad
credit applicants. To refinance with poor credit, you will have to obtain a
loan from a sub prime lender. Choosing the best sub prime lender
requires a little effort. If getting the lowest rate is a top priority,
contact several lenders and request online quotes. Review each quote
received, and go with the lender that offers the best refinance package.
See my recommended
Bad Credit Mortgage Refinance Lenders for the lowest rates
Carrie Reeder is the owner of ABC