Bad Credit Refinance Options

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Bad Credit Refinance Options
When should you consider a bad credit refinance of your existing mortgage? According to experts, if you can qualify for a new mortgage rate that is at least 1.5% points lower than your existing mortgage APR, it's time to consider refinancing your home mortgage. If you've had trouble meeting your bills resulting in bad credit, refinance could still be an option - and it could be an option that will help you clear up your debt and clean up your credit score.

When you refinance your mortgage, you are essentially taking out a new mortgage to pay off your old one. This only makes sense if you benefit in some way, obviously, and the most common benefit is in a lowered interest rate - which means lower monthly payments. Over the past several years, interest rates have dropped considerably - in fact, they're currently at a 40 year low. With mortgage rates that low, even the premium interest rates associated with bad credit refinance can save you $150 or more a month in monthly mortgage payments.

Another way to use a bad credit refinance is to tap into the equity you've built into your home. It's called 'cash out refinancing' and it works like this. Your current mortgage was for $150,000, and you still owe $110,000 on the mortgage. If you refinance the mortgage for the entire value of your home - $150,000 - you can pay off the remainder of the existing mortgage, as well as any refinance fees, and still have about $35,000 (or more depending on the deal you worked out with the new lender) to pay off other debts, home improvements or any other purpose.

If you're not certain whether or not a bad credit refinance would be beneficial to you, your best option is to visit a home mortgage lender that provides a mortgage loan calculator. Enter your current mortgage amount and monthly payments, and then the new interest amount. If the difference between your current monthly payment and the new one is more than $150, and you plan to stay in your house for at least three more years, chances are that a bad credit refinance would definitely benefit you. To be on the safe side, though, be sure to check your current mortgage for any prepayment penalties, and factor in all the closing costs on your new home mortgage. If the monthly payment is lower, and you end up with cash back to apply to other expenses, then a bad credit refinance mortgage is definitely worth looking into.

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