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:
Some tax issues to consider on mortgage write-downs (Washington Post)
With the Obama administration and private lenders actively considering mortgage principal-reduction programs to help financially distressed homeowners, the Internal Revenue Service has issued a new advisory to taxpayers who receive -- or seek to receive -- such assistance. The IRS gets involved in m...
Borrowers in foreclosure prevention plan losing mortgage aid (Washington Post)
About 90,000 distressed borrowers have lost their mortgage aid under the government's foreclosure prevention plan, and many more are at risk of losing the help, according to Treasury Department data released Friday.
Some tax issues to consider on mortgage write-downs (Washington Post)
With the Obama administration and private lenders actively considering mortgage principal-reduction programs to help financially distressed homeowners, the Internal Revenue Service has issued a new advisory to taxpayers who receive -- or seek to receive -- such assistance. The IRS gets involved in.....
Lender blames escrow shortage for $400 increase in monthly mortgage payment (...
Q: We have owned our house for many years, and the lender has always escrowed money to pay our real estate taxes and insurance. This year, we received a notice from the lender that our monthly mortgage payment will increase by over $400 because there is an escrow shortage. Can we cancel the escrow r...
?Mortgage Financing Risks High Inflation? (This Day)
Management of Diamond Bank Plc has said the rising inflationary rate in the country is having adverse impact on the operations of mortgage business.
Yahoo! News Search Results for refinance
Refinance may limit financial flexibility (Bankrate.com via Yahoo! Finance)
Reduced financial flexibility may be the price for a home refinance that lowers your mortgage rate.
Pernod Ricard Plans to Issue Bonds to Refinance Absolut Buyout (Bloomberg)
March 10 (Bloomberg) -- Pernod Ricard SA , the world?s second-biggest liquor maker, is planning to sell six-year bonds to help refinance loans used to buy the Absolut vodka brand in March 2008.
REITs show rising prices but growing risks (Washington Post)
Analysts, bloggers, real estate dealmakers and managers of mutual funds are as puzzled as I am about the 90 percent rise in REIT indexes since March 2009. Commercial real estate lags the business cycle, so shares of real estate investment trusts normally do not rebound until after it's apparent the....
Euro finance ministers to agree on Greek aid: source (Reuters via Yahoo! News)
Euro zone finance ministers are likely to agree on Monday on a mechanism for aiding Greece financially, if it is required, but will leave out any sums until Athens asks for them, an EU source said on Saturday.
Do-it-yourself taxes vs. the CPA (Washington Post)
After turning to a professional, one taxpayer went from owing thousands to getting a big refund.