Mortgage Loan Refinancing With Bad Credit: What Issues to Watch Out For
Economic situations are always changing, so when a financial commitment is long-term, refinancing is sometimes needed. But when availing of mortgage loan refinancing with bad credit there are issues to consider.
It is only logical that the financial fortunes of a borrower can change dramatically over the course of a 30-year term. It means that what was affordable at the time the deal was done, might not be affordable now. But by securing a refinancing loan, the difficulties that have developed over the years can be quickly alleviated.
Having bad credit always impacts on loan terms, chiefly affecting the interest rates and the affordability of the loan. When it comes to mortgage loans, improving a number of aspects, including the credit rating, can lower costs dramatically. And the right refinancing deal can have the desired effect.
The Significance of Credit Scores
Having a bad credit rating often seems unfair to applicants, but it is worth knowing that lenders do not place the same significance on credit scores that they once did. They understand that circumstances can dictate matters and affect the scores adversely. This is why it is possible to qualify for mortgage loan refinancing with bad credit.
When a lender considers a loan application, the ability to repay the loan is their chief concern. So, the main assessment is centered on income and the debt-to-income ratio. The credit score does not provide this information, but employment, monthly costs and existing debts do.
When a mortgage is too large a share of that debt, then securing a refinancing loan can improve the overall situation for the borrower, leading to a healthier debt-to-income ratio and overall stronger financial position. And since the mortgage loan is repaid in full, the credit score is improved too.
What Lender To Approach
Just like any other loan, a refinancing loan needs to be secured with the right terms to ensure it makes a real difference. Getting the best terms means finding a lender willing to provide mortgage loan refinancing with bad credit but without charging high interest.
The internet has made the task of finding the best lender easier, allowing borrowers to have access to thousands of lenders in seconds. A comparison site allows for the best quotes to be found quickly, but before securing a refinancing loan, it is important to contact the lenders directly.
It is a good idea to make a shortlist of the most promising lenders, comparing the details of their respective offers, before narrowing the list to one or two to apply to. But look at all the options available, including sub-prime lenders despite their high cost. That way, your mortgage loan can be refinanced most effectively.
The Benefits of Refinancing
Of course, the point to mortgage loan refinancing with bad credit is that the financial pressure is lifted, and a stronger financial situation can be enjoyed. But the key to any refinancing deal is that the monthly repayments are lowered, thus freeing up extra cash to cover other debts.
A lower repayment is achieved by buying out the existing mortgage balance with the refinancing loan. Logically, this loan is lower than the original mortgage. For example, after 5 years, perhaps 35,000 of a 30-year $200,000 mortgage will have been paid off. So, a refinancing loan of $165,00 is needed to pay off the balance. But because the term is 30 years also, the repayments fall - from $620 to $490.
By securing a refinancing loan, it is possible to cut the cost of your mortgage, but remember that there are factors that need to be considered. Improving credit scores helps, but buying out the existing mortgage loan is the most effective option.
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ABOUT THE AUTHOR
Mark Venite is the author of this article and a successful financial advisor with 20 years of experience. He helps people to get approved for Bad Credit Personal Loans for 5000 and Bad Credit Student Loans Guaranteed. For more information about his services please visit him at http://www.accessmyloan.com