Bad Credit Mortgage Refinancing
Carrie Reeder
Problem Number One: The homeowner has bad credit, significant high interest credit card debt and a home with substantial equity. In order to pay off the high interest bills, the person refinances his/her home and cashes out all or part of the equity. The cash from the equity is used to pay off the high interest obligations. Although the interest rate on the bad credit mortgage refinancing loan may be higher than that of a conventional loan, the house payment should still be less than the total of the high interest consumer debt.
A bad credit mortgage refinancing where the owner intents to use the cash from the home's equity to pay off bills is called a debt consolidation loan. The value of the home being refinanced must have grown so that the home's appraised worth will justify a larger loan. The new loan amount must be high enough that the owner can cover the loan's closing costs and still have enough left over to pay off the credit card debt.
A bad credit mortgage refinancing such as this can have several advantages. The term of the loan will be longer. Since even a high interest subprime loan carries a lower interest rate than do high interest credit cards the new house payment will be smaller than the total of the old house payment and the consumer debt payments. However, choosing to refinance in this manner carries risks. If the homeowner does not change the behavior that led to the high debt, even more high interest credit card bills may be accumulated. Since the homeowner's equity has already been "cashed out" of his/her house the only alternative in a money crunch may be bankruptcy or foreclosure.
If a homeowner chooses a debt consolidation loan as the method of bad credit mortgage financing, it is imperative to use the cash received to pay off the accumulated debts. Credit counseling to keep from returning to poor credit practices should also be considered.
Problem Number Two: The homeowner had bad credit when the home was originally purchased and had to take out a high interest subprime mortgage loan at that time. Two or more years have passed since the loan was made during which time the homeowner has made all of the loan payments on time and has incurred no other bad credit. Now the time has arrived to refinance the loan and receive a better interest rate.
Even with two years of excellent credit history, a homeowner trying to refinance a bad credit mortgage may not be able to obtain a conventional low interest loan. The type of loan that can be attained will depend on a variety of factors such as current income and how much debt the homeowner has.
Refinancing a bad credit mortgage under these circumstances may be a good idea if the following two statements are true.
1. The new loan will carry an interest rate two or more percentage points lower than the current loan.
2. The homeowner plans to stay in the house for three or more years.
About the author:
Carrie Reeder is the owner of www.abcloanguide.com, an informational website about various types of loans. View her recommended Bad Credit Mortgage Refinance lenders.
The latest information and news on Mortgages:
Leading Democrat offers mortgage aid bill (Reuters via Yahoo! News)
The second-ranking Democrat of the U.S. Senate on Tuesday introduced legislation that would let bankruptcy judges erase some mortgage debt in an effort to stem foreclosures.
Mortgage-Bond Yields Hit Lows on Speculation of More Fed Buying (Bloomberg)
Jan. 6 (Bloomberg) -- Yields on Fannie Mae , Freddie Mac and Ginnie Mae mortgage bonds fell to record lows, dragged down by their declining spreads relative to government notes after the Federal Reserve began a $500 billion program to buy the bonds.
Mortgage-backed Securities Jump, Signaling Rates To Drop (Fox News)
Mortgage-backed Securities Jump, Signaling Rates To Drop
Mortgage-Bond Spreads Fall Amid Speculation of More Fed Buying (Bloomberg)
Jan. 6 (Bloomberg) -- Yields on Fannie Mae , Freddie Mac and Ginnie Mae mortgage securities tumbled to the lowest since October 2007 relative to government notes, after the Federal Reserve began a $500 billion program to buy the bonds.
Fed to Begin Buying Mortgage-Backed Securities (New York Times)
The Federal Reserve Bank of New York said Monday that it had begun purchasing mortgage-backed securities in an effort to bolster the battered housing market.
Yahoo! News Search Results for refinance
Rushing to refinance: Is it worth it? (WINK TV Southwest Florida)
Right now 30-year, fixed mortgage rates are at a 37-year low, and that has many people looking to save.
Govt to focus on IIFCL refinance (Central Chronicle)
New Delhi, Jan 5: The government will focus on utilisation of refinance facility extended to IIFCL to provide Rs 75,000 crore for the infrastructure sector projects with a view to arrest economic slowdown, Planning Commission Deputy Chairman Montek Singh Ahluwalia said on Monday.
Now is a good time to refinance (Ravalli Republic)
Plunging interest rates over the past month have prompted many homeowners in the Bitterroot Valley to look into refinancing, local lenders say.
Govt to focus on IIFCL refinance to pump in Rs 75k cr (The Hindu)
NEW DELHI: The government will focus on utilisation of refinance facility extended to IIFCL to provide Rs 75,000 crore for the infrastructure sector projects with a view to arrest economic slowdown, Planning Commission Deputy Chairman, Mr Montek Singh Ah luwalia said on Monday.
Govt to focus on IIFCL refinance to pump in Rs 75k cr: Montek (Business Stand...
The government will focus on utilisation of refinance facility extended to India Infrastructure Finance Company (IIFCL) to provide Rs 75,000 crore for the infrastructure sector projects with a view to arrest economic slowdown, Planning Commission Deputy Chairman Montek Singh Ahluwalia said today.