Refinancing a mortgage with a bad credit score cannot be regarded as being an insurmountable obstacle. However, the fact remains that having a bad credit automatically debars you from qualifying for the lowest available interest rate. Thus, the question becomes not as much a matter of whether you can get refinancing with bad credit, but rather one about whether you can get refinancing on worthwhile terms.
Additionally, the lower your credit score, the more expensive refinancing the mortgage will be. If your poor credit rating has come about through missed mortgage payments, the chances of refinancing appear slim. On the other hand, if other factors such as credit card debt have contributed to your bad credit score, refinancing may prove to be a worthwhile option.
Some of the steps to consider when seeking refinancing for a mortgage include:
Check out the rates offered by several lenders and brokers and also the terms they provide. While mortgage brokers can track down the lowest rates and the best terms for you, you would have to pay them something as well.
Seek Help from Mortgage Advisers:
Mortgage Advisers usually provide you with a quote for their fees, before you pay them anything. Approach them for advice as they may help you to choose the best recourse from the options available.
Interest Only Refinancing:
This should only be considered if you have sufficient confidence that you would be able to overcome your financial difficulties within the next 12 months. This option enables you to make payments only on the interest component of your loan for a stipulated period of time. However, it also leaves your entire principal amount outstanding.
Traditional Cash-Out Refinance Plan:
This option relies on the fact that the value of your house has appreciated since the time you purchased it. It enables you to refinance your home based on the current market value.
Improve your Credit Score:
In some cases, credit scores can improve dramatically by paying off high-balance credit cards within a month’s time. Credit counsellors can prove to be of use too.
Lenders usually allow borrowers seeking refinancing to purchase points. While this remains a feasible option only if you plan on staying in the same home for some years, purchasing points enables you to reduce your interest rate.
While they will not be able to raise your credit scores substantially so as to get better interest rates, they could well provide you with options and avenues that you hadn’t even thought about. Their advice could enable you to refinance your current debts in addition to increasing your credit score.
Dickens’ Bad Credit Advice
English author, Charles Dickens, said, “Credit can be defined as being a system whereby a person who can’t pay gets another person who can’t pay to guarantee that he can pay”. While most refinancers would disagree with this statement, the fact remains that by providing you with credit despite a bad credit score, they certainly ease the burden of debt on you. In doing so, they can also leave you feeling indebted to them – but this would be one debt that has no financial bearing on your credit score.