If you own a home, you are probably aware somewhere in the back of your mind that refinancing can be a smart move. However, if you are like most people, it is hard to know when to "pull the trigger" on refinancing your home.
Mortgage refinance can be defined as paying off your existing first mortgage (or first and second mortgages) with a new mortgage loan, usually at a lower interest rate.
The Advantages Of Refinancing
There are a number of benefits to refinancing, if the market conditions are right and your situation warrants it.
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Refinancing can result in your having a lower monthly house payment. It can also mean saving money in the long term by lowering the total cost of your loan. And, refinancing a mortgage can allow some homeowners to liquidate some of the equity in their home - turning it into cash to be used to pay other debts - or for investments.
When Is The Right Time To Refinance?
Refinancing is not for every mortgage holder. However, there are certain telltale signs that it may be a smart move for you to refinance, such as:
a. you have noticed that interest rates are on the decline, especially relative to when you took out your mortgage
b. you are currently facing foreclosure or loan default
c. you have significant equity in your home and would like to restructure your mortgage in order to convert some of that equity to cash
d. you would like to change the payment terms on your mortgage, making it either longer (to reduce monthly payments) or shorter (to pay your loan down faster and reduce the total cost of your loan)
The Challenge Of Bad Credit
As with any financial loan, your new lender will run a credit check on you before approving your application. The result of the credit check will also have an effect on the refinance interest rate you will be offered.
That is why having a low credit score (below 600) is a challenge for refinancing. Fortunately, there are bad credit refinancing lenders who specialize in working with bad credit individuals who want to refinance their homes.
3 Steps To Securing Mortgage Refinance Loans For Bad Credit Individuals
If you have a bad credit score but are interested in refinancing your mortgage, here are 3 steps to getting there:
1. Decide your ideal payment terms: Use an online mortgage calculator to determine the ideal payment terms (in years) for your new loan. Remember that a longer term will mean lower monthly payments but a higher total loan cost due to the additional interest you will need to pay.
2. Run your credit report with all three major bureaus: Your credit score is actually a collection of different scores from different bureaus. Each credit bureau uses the same FICO formula to determine your score. But, given that each bureau has access to different information about your financial history, your scores will still vary from one to the next. Best to know all 3 of your scores.
3. Build a list of at least 5 bad credit mortgage lenders: Anybody will tell you that having more options is better than not. This is especially true when it comes to taking out a loan. Spend the extra hour or two and apply with at least 5 lenders (not just one, such as your current lender). You stand to end up with a much better interest rate on your mortgage refinance if you do.
Take these 3 steps to secure a mortgage refinance, even if you have bad credit.
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