Refinance the Mortgage You Got with Bad Credit: Why This Is a Good Idea

Many people have jumped on the dip in home prices over the past few years, causing them to purchase homes. Since many lenders are offering home mortgage loans to those with bad credit, many people have taken loans with less favorable conditions in order to secure the benefits of home ownership. However, it is important for those buyers to remember that the bad credit score they had when they purchased their home will not always remain. Therefore, refinancing the home loan you originally took, and was generated based on your bad credit score, can greatly improve your financial life.Changing Your Bad CreditMany people have run into credit problems over the last few years, causing bad credit scores to stack up fast. Lenders have therefore changed the criteria that need to be met to buy a home. Borrowers with bad credit have been able to purchase homes as a means to increase their net worth and achieve the American Dream.However, the circumstances of taking a home loan with bad credit often lead to unfavorable conditions for that loan. Namely, you will pay higher interest rates which leads to a larger monthly payment. Through the process of responsibly repaying your home loan, however, your credit score should improve, qualifying you for better loan terms.Making the Decision to RefinanceThe decision to refinance a home loan should be made based on the amount of money you currently spend on your home loan each month versus the amount of cash you have available to go towards that loan. Even a small change in interest rate can greatly affect the amount of your monthly bills, which is what makes refinancing such a great option. Consider this: a $150,000 home loan taken at 8% interest will require that you pay about $990 per month on your mortgage. However, that same loan taken at 6.5% interest will only be about $850 per month.Clearly, there is an advantage to looking for a lower interest rate on your current home mortgage if you want to save money. So, if you know that your credit rating has improved since you first purchased your home, looking for a refinance loan could make a big difference in your quality of life.Just Like Looking for Your First LoanMany people who are interested in refinancing a mortgage that was taken with bad credit make the mistake of merely asking their current lender to help them out. While it is worth it to discuss refinance options with your current lender, remember that he is the one who stands to lose the most out of your refinance. Since interest rate is the profit a lender gets, lowering your rate means less profit to him. Therefore, your best bet is to find a competing lender to do your refinance. Since he is not currently making a profit from your mortgage, giving you a lower rate is in his best interest.In many ways, looking to refinance your home mortgage is the same as when you were originally mortgage shopping. It is essential that you shop around and talk to several lenders. You may even want to talk to a mortgage broker about finding you a deal.Hard Work RewardedWhen you had bad credit, there was a lot of work that you needed to do to pull yourself up back into the good graces of lenders. Once you have completed that work through responsible financial management, it is time to reap the rewards of that hard work. Choosing to refinance a mortgage you took with bad credit is one way to do that.