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Refinance with Bad Credit, where the owner intents
to use the cash from the home’s equity to pay off
bills is called a debt consolidation loan. The value
of the home being refinanced must have grown so that
the home's appraised worth will justify a larger
loan. The new loan amount must be high enough that
the owner can cover the loan’s closing costs and
still have enough left over to pay off the credit
card debt.
A bad
credit mortgage refinancing such as this can have
several advantages. The term of the loan will be
longer. Since even a high interest sub-prime loan
carries a lower interest rate than do high interest
credit cards the new house payment will be smaller
than the total of the old house payment and the
consumer debt payments. However, choosing to
refinance in this manner carries risks. If the
homeowner does not change the behavior that led to
the high debt, even more high interest credit card
bills may be accumulated. Since the homeowner’s
equity has already been “cashed out” of his/her
house the only alternative in a money crunch may be
bankruptcy or foreclosure.
If a
homeowner chooses a debt consolidation loan as the
method of bad credit mortgage financing, it is
imperative to use the cash received to pay off the
accumulated debts. Credit counseling to keep from
returning to poor credit practices should also be
considered.
Problem Number Two: The homeowner had bad credit
when the home was originally purchased and had to
take out a high interest subprime mortgage loan at
that time. Two or more years have passed since the
loan was made during which time the homeowner has
made all of the loan payments on time and has
incurred no other bad credit. Now the time has
arrived to refinance the loan and receive a better
interest rate.
Even
with two years of excellent credit history, a
homeowner trying to refinance a bad credit mortgage
may not be able to obtain a conventional low
interest loan. The type of loan that can be attained
will depend on a variety of factors such as current
income and how much debt the homeowner has.
Refinancing a bad credit mortgage under these
circumstances may be a good idea if the following
two statements are true.
1. The
new loan will carry an interest rate two or more
percentage points lower than the current loan.
2. The
homeowner plans to stay in the house for three or
more years.
View
our recommended Bad Credit Mortgage Refinance
Lenders here:
Recommended Bad Credit Refinance Lenders.
Carrie
Reeder is the owner of ABC Loan Guide, an
informational website about various types of loans
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Refinance with Bad
Credit
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