A Mortgage Refinance with Bad Credit - The Pros and Cons
To many, the term 'bad credit' is the end of the world when it comes to getting financing in the near future. However, it doesn't always have to be like that, you can take the bad credit mortgage refinance option!
It is essential at the outset that you understand there is a fundamental difference between mortgage refinancing and equity financing. Basically, with equity financing you are using the surplus amount you may have stored up in your property between your outstanding mortgage amount and the appraised value of your home. However a mortgage refinance is where you find a new lender willing to lend you the whole appraised value of your property, the sum of which you then use to repay your existing mortgage lender and the remaining sum you can utilize in any manner you wish. Because of this, you are faced with a different set of problems than would be the case with an equity financing.
Aside from any possible equity financing you can do with your property, without doubt the biggest upside to a bad credit mortgage refinance is the fact that it is a long-term and cheap form of borrowing. Interest rates are likely to be low and, possibly, can even be fixed. You could even possibly benefit from certain tax advantages from a bad credit mortgage refinance.
Because of this, bad credit mortgage finance can allow you to do things financially that may not otherwise be available to you as a person with a bad credit rating. You could use the equity you free up after you repay your original mortgage lender to invest in stocks and savings that will give you a better yield than you are currently getting on the property.
Alternatively, you could pay off all outstanding debts you have so that you have no interest and debt payments to make each month – merely a mortgage repayment. Finally, you could even use the equity you get to invest in a long-term investment plan like your pension. In fact the options are so limitless that you should really consult with a financial expert who can best advise you on how you should put that money to the best use for you!
The number one downside to any mortgage refinancing, whether it be bad credit or otherwise, is the fact that mortgage lenders do not like to be repaid early. As such they usually incorporate some expensive penalty clauses to try and make it not worth your while repaying them early. With this in mind, you will need to read your original mortgage agreement with your original lender very carefully to make sure you won't have any onerous default payments to make; or, you could try and arrange for the new lender to swallow these.
That said, if you make any arrangements with the new lender that they agree to pay these fees for you, you then need to make sure they do not put any restrictive clauses in your new refinance mortgage agreement that would prohibit you from refinancing your mortgage again at some time in the
future if the occasion warrants such.
Without a doubt, as a person with a bad credit history and bad credit rating, a bad credit mortgage refinance can open up avenues to you that would not otherwise be there. You do, however, need to give consideration as to whether or not you want to take this route. Not least because at the end of the day your house and family home is on the line!
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How to Get a Bad Credit Home Loan Mortgage Refinance
If you’re looking for a home loan mortgage refinance with bad credit, there are ways to start borrowing money without paying high fees and exorbitant interest rates. A friend of mine, Sue, was stuck with a 7% mortgage. And because she didn’t have a high credit score, she thought she was unable to take advantage of current low rates.
Here’s what I suggested she do:
The first thing Sue needed to do was find out what her credit score was and then do everything possible to improve it. Surprisingly, this is not a tough process. You can even get your free credit score with no no credit card (and I suggest you do). Once you know your score, you can take four simple steps to improve your credit score and buy a house. You’ll see significant results within six months.
While nobody can predict the direction of interest rates, it’s reasonable to expect higher rates down the road. That’s why it’s so critical to get this step going immediately.
In Sue’s case, what she really needed was more income. Actually, her husband needed more income. So the key to refinancing for Sue was getting her husband off the couch and into the workforce.
Another way to refinance your home if you have bad credit is to think outside the box. For example, let’s say you know you are only going to live in your home for another five years. Why not look into interest-only or balloon payment loans? I’m generally not a fan of these loans because they can be expensive, but it’s all relative. If you currently pay 7% and you can get a balloon payment loan at 5%, go for it. Sure it’s higher than conventional loans, but so what? It’s still a good way to save some dough.
Another option is for someone in your family (preferable somebody really loaded) to pay off the mortgage and then extend a loan to you at a more reasonable rate. If you have the right family, this could be a beautiful move.
Consider selling the house to someone else who can qualify for a good loan and rent it back from them. Your rent payments will equal the mortgage they are paying. Of course this arrangement requires lots of trust and preferably an agreement to sell the house back to you at a specified price in the future. It might be a short-term deal – just long enough for you to repair your credit score.
A bonus option is to sell the home and rent somewhere else for a while. Then, after your credit score improves, look into buying.
This is really more of a discussion about whether it’s better to rent or own real estate. Right now, with rates and prices low, it’s a good time to own and buy real estate, but it might take a while for such a move to pay off. But if you can improve your credit score enough to reduce the exorbitant rates you’re paying, renting for a year or so might be very smart. You are taking the chances that rates will be stable and that prices won’t increase, but in my opinion, these are not wild assumptions.
It’s somewhat aggressive, and you have to do the math to see if it works. Let’s take an example to illustrate. If your monthly payments are $3,500 a month for your mortgage now and you could rent for $2,000, you could save $1,500 a month. If you do this for two years, you’ll save $36,000. But it usually costs 8% to sell and move. If you sell the home for $500,000 and incur 8% total selling and moving expense, you’re going to be out $40,000. That eats up your “rent savings” plan.
If you’ve had less than great credit, how did you refinance? What decision did you make? How?
Learn How to Successfully Refinance Your Auto Loan With Bad Credit Using These Steps
Auto loan refinancing can be a great option for people looking to lower their monthly auto loan payment and those looking to pay off the loan or obtain a favorable interest rate. Car refinancing is generally quick and easy because the process is fairly direct and there are no exorbitant fees and appraisals.
People with bad credit can greatly benefit from the new terms of payment. Before choosing to refinance your auto loan, there are several things you need to keep in mind. First, if your credit score is too low, you can still auto refinance your auto loan. The following steps can help you improve your credit score:
- Apply for subscription service and make small recurring pavements
- Becoming an authorized user of the credit card belonging to someone with good credit history
Your chances of refinancing can, however, diminish if your car is too old; if you owe more money than the value of the car and if the car has accrued over 100,000 miles. The other thing you need to do is shop around for the best refinancing options and work closely with your lender. You can refinance you car loan via traditional brick and mortar banking institutions, credit unions or peer-to-peer lending firms. Although the entire refinancing process may seem easy and painless, you can obtain better results with proper organization and focus. Below are key steps for successful auto loan refinancing.
- Pick your documents and evaluate your credit history: Proper planning and organization is crucial when applying for auto loan refinancing. Some of the documents you need to posses from your current loan payment include a stub indicating your monthly payment, the loan term remaining on your loan and the current interest rate. The other crucial documents include; driver’s license, social security number, pay stubs from your current employer and your vehicle’s identification number. Once you have organized your documents, you need to evaluate your credit history, to see where it stands.
- Make an application and check the calculations: When you are making an application for auto loan refinancing, it is highly recommended that you check out several refinancing companies and make an interest rate comparison to find the best offer. Since the application process is risk free, you will also get the opportunity to learn valuable lessons along the way. Once you have settled on a lender, submit your application within a 2 week period since most firms handle submissions accumulated within this time frame. To get first hand insight into the repayment, use an auto loan calculator.
The elements you need to enter or consider to determine your auto loan repayment include:
• New interest rate offered by the new lender
• Number of months remaining in your current loan
Determine If Refinancing Is The Best Option For You
Once you have established the benefits of refinancing such as saving money and low interest rates, you can go on and complete the refinancing process. However, if you have determined that the refinancing will only save you negligible amounts of money or none at all, you may decide to rescind the decision.
Evaluate the Terms of The Loan And Sign
When evaluating your loan payment, you can choose to retain the length of your current loan repayment, pay off the loan quickly or extend the repayment period. Once you have made up your mind to refinance your vehicle, you need to complete the process by agreeing with the instructions issued by the lender. The process involves signing the documents provided by the lender. The document will state, among other things, the creation of a new loan with the new interest rate, payment duration and a commitment for full repayment of existing loan by refinancing firm. The documents will also state the new monthly payments you need to make.
If you are looking for speedy auto refinancing approval, there are a number things you need to consider in the process. First, your auto refinancing loan needs to bear the same name as the existing loan. Secondly, you must provide accurate details of your car, model, year and the Vehicle Identification Number (VIN). You can also gain greatly, if you have a car loan or mortgage that has been fully repaid and closed. Finally, when choosing a lender always pick one who offers the lowest Annual Percentage Rate (APR). The lender should also be experienced and well-versed with all matters concerning auto refinancing.
need to refinance my home with bad credit
If you have bad credit, you probably realize the worst by-product of it all is that you can’t get a low interest rate when you want to refinance or apply for a mortgage. Refinancing when the rates are low is an ideal way to lower your payments on your mortgage. However, that can be difficult to do when your questionable credit history throws a wrench into the works.
There are a few steps you must take that are essential to the process before you sign on the dotted line.
1. Check your Credit Score
Your credit score(s) determine whether or not you will qualify for refinancing and what type of interest rate you will get. Usually, the higher the credit score (http://www.wisegeek.com/what-is-a-good-credit-score.htm) the lower your rate will be.
Lenders usually want you to have at least 20% equity in order to refinance. Lenders typically will only finance 80% of the value of the home in a refinance.
You may not find a lot of difference in rates due to recent laws in the banking industry but it always makes good sense to research all of your options on rates and term lengths.
There are other costs associated with a loan. Some of the more common major cost and fees are; Loan Origination Fees, Application Fees, Appraisal Fees, Points, Lender Home Inspection Fees, and Private Mortgage Insurance. The fees can vary from lender to lender, so it is a very good idea to understand what your closing costs may be and to make sure that the refinancing savings outweighs the cost.
5. Gather Important Documents
You may be surprised at the scrutiny lenders apply to potential borrowers. Some of the information you will need is documentation about your current loan, income tax returns, savings and investment information. You also will need to prove employment and current income.