Mortgage Refinancing With Bad Credit: When Is The Right Time

Bad spending habits can take a toll on your credit score and subsequently, your mortgage refinancing. It may not matter now, but once you decide to take out a loan, your credit report will play a vital role in the chances of your loan application getting approved. Very rarely does a less-than-stellar score stand a chance of benefiting from low mortgage rates. While a credit score is going to be your prime factor in determining your terms and rates, you can still explore some options that will help you to get low mortgage rates. There is one thing you need to keep in mind though-timing is everything. Find out when it is a good idea to refinance your mortgage.

Reasons for mortgage refinancing

One of the top reasons homeowners choose to refinance mortgages is to reduce their interest rates so they can have lower interest costs. This is a suitable option if you have problems with your credit score since you will be not qualified for lower mortgage rates. When you refinance, you will also speed up your loan repayment. For instance, if you need to repay your loan in 20 years, it will be reduced to 15 years. Another reason you should refinance a mortgage is to change your adjustable-rate loan. Usually, it is converted to a fixed-rate loan. If you need money for covering repairs and other expenses, refinancing your loan is also a good idea. A refinance can lower your monthly payment and rate depending on your current score. It is important that you shop around before making that final decision.

Before you decide to refinance your mortgage, be sure that your requirements are ready. Prepare your debt-to-income requirement which varies depending on your lender and program. There are different loans that offer to refinance so you need to weigh your options carefully. You can also take several routes in refinancing your credit. If you have an existing FHA loan, you can consider FHA Streamline Refinance. Credits as low as 580 or even 500 depending on your lender can take advantage of this refinance program.

Best practices for lower-credit borrowers

Build up your savings account

If you have a good amount of savings, you will be able to demonstrate to lenders your ability to repay the money you owe. It is also an indicator of your financial safety net so you can avoid late payments.

Explore loan program options

There are loan programs you can consider where your credit scores do not matter. You can consider this alternative loan program if you need to refinance your mortgage.

Refinance with your lender

Discuss your options with your current mortgage lender. If you have stable employment, a qualifying DTI, and been making timely payments, your current lender might reconsider you for mortgage refinancing.

Things to keep in mind before refinancing with bad credit

Although a bad credit score does not limit your ability to refinance your mortgage, it still comes with a caveat. Since lower-credit borrowers pose increased risk to lenders, expect rates and fees to be higher which will deprive you of making potential savings. Refinancing your mortgage might be a good idea but you need to weigh the pros and cons. This option will only be beneficial if you have reached the break-even point.

Instead of exploring the mortgage refinancing option, consider improving your credit score by repaying some of your debts, minimizing credit card spending, settling overdue accounts and checking your credit report for any errors. With these practices, you will fix your credit score and explore better refinancing options in no time.

When To Consider Refinancing Your Mortgage

Refinancing a mortgage might have already crossed your mind, but since it’s a major expense, you’ll need to give it a thought before making a decision. Aside from analyzing the closing costs, you’ll also have to think about the refinance rules. If you find it difficult to pay your mortgage, refinancing will help you reduce your monthly payment. Of course, it comes with a caveat. Before you consider mortgage refinancing, here are some questions that will help you to make the right decision:

1. Are the refinance terms favorable to me?

It’s easy to get carried away with what the mortgage refinance company offers. You’ll know whether the terms and conditions are favorable if you take the time to read the fine print. Some of the key points to check are the late fees or penalties. Lenders don’t have the same policies when it comes to late payments, so you need to be careful. Before signing the paper or agreeing to the terms, check if they are favorable and acceptable.

One thing you need to find out is how many instances of non-payment will lead into foreclosure. While you may find it convenient to pay off the loan in advance, some lenders don’t allow this practice. Review all the offers before you decide. You might have to scratch beneath the surface of the offer. Interest rates and other charges might hurt your budget.

2. Do you have an option to lock in the lower rate?

The purpose of refinancing is to save money on your monthly mortgage payments. Instead of going for the adjustable rate mortgage, you should consider locking in a lower rate. Doing this can save you from paying higher interest rates, which usually happens when you choose an adjustable rate mortgage. Imagine paying a higher monthly rate. You’re instantly defeating the purpose of mortgage refinancing.

3. Are you aware of your interest rate?

Refinancing your mortgage qualifies you for a much lower interest rate than the amount you used to pay each month. Don’t sign the papers unless you have thoroughly understood the rate and terms of your loan. Check the terms if they are still the same as what you have agreed initially. In case the rates change, be sure that you’re still getting a good deal. You might need to look at different banks to find out which of them offers the best mortgage refinancing terms. You can also ask if you can get lower rates or discounts for automatic payments.

4. Am I aware of the reasonable length of the loan?

Mortgage refinancing enables you to lessen the burden of paying your loan. You have two options to consider: Choose a shorter length of the loan or the longer payment term. Each option has its implications. For shorter loan length, you’ll need to pay the higher amount and go debt free after a few years. A longer term, on the other hand, lets you pay a lower rate, but expect to pay more in interest. As much as possible, you should refinance to a maximum of fifteen years.

5. Am I protecting my home and my financial future?

When money isn’t available, taking out a loan is the easy way out. If you intend to refinance by drawing out the equity of your home so you can use the money for financing a college education, home improvements or paying off other debts, then you’re only increasing the interest rate by extending the life of your loan. This practice can put your home at risk, especially when you’re unable to keep up with your monthly payments. This misstep can also change the value of your home.

Make a wise decision. Contact a local expert to know more about mortgage refinancing:

Cape Coral Mortgage, Inc.
3512 Del Prado Blvd. S Ste106
Cape Coral, Fl. 33904
(239) 540 5555