Bad Credit Mortgage Refinance – Not a Contradiction in Terms
A bad credit mortgage refinance may seem like a contradiction in terms however in some cases it can save a home owner a lot of money. National mortgage rates fluctuate and many home owners wait for a drop before refinancing, however if you have what is called a bad credit mortgage, paying PMI and only a small fraction of your monthly payment is going towards your principal, refinancing your mortgage will save you thousands in the long term.
There are many mortgage lenders who will welcome your business even though your credit score is not all that great. There is a lot of competition among these lenders and many will take you on despite the risk a low credit score represents. As a matter of fact, if you fill out one of those online forms on a website that lets lenders bid on your account, the you will most likely be fielding calls from multiple lenders. This can be annoying however it does prove that you are in the drivers seat and have the power of choice.
Be sure to look at several companies before settling on one as there are hundreds of deals out there and it is in your best interest to compare the rates and fees of as many lenders as you can. With the level of competition as high as it is you are bound to find one or two lenders willing to go the extra mile to get your business.
The way this usually works is you and the new lender will work out a total amount, a closing cost, and an interest rate. The total amount wil be used to close out the first mortgage. If this amount does not cover the amount due on your previous mortgage you will need to pay the rest out of your pocket. Sometimes the lender will roll this amount into the loan. Get out your calculator and find out how long it will take for you to get beyond the added fees and the interest. After this threshold point the savings from your new interest rate will kick in. If you don’t plan on staying in the house past this threshold point it doesn’t make sense to refinance your mortgage.
Also, depending on the amount of equity you have accumulated on the previous mortgage, you may still need to have PMI insurance. To get rid of this you will need to have paid 20% of the total loan. If you do need PMI on your refinanced loan, something to consider is to have this removed from the loan, that is, pay off this insurance separately from your monthly mortgage payment. This way, more of your payment will go towards the principal and in turn, you will reach the 20% threshold of equity necessary to get rid of the PMI altogether.
If you have bad credit and you own a home, you owe it to yourself to at least look around and see what is available. Wether rates are at historically low levels, moderate, or high, if you can secure a better interest rate on your mortgage, regardless of the extra fees involved, you could save a lot of cash. You’ll never know unless you try.
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