Bad Credit Refinancing
- Pre-payment penalties may be one of the biggest obstacles to refinancing
when you have bad credit. These penalties vary from state to state
but the main purpose is to protect the lender from losing money when
taking on higher risk mortgages.
Sub prime lenders are another great alternative. Because these
lenders specialize in high risk loans, they have various loan programs
for individuals with poor credit. Submitting an application online
is the quickest and easiest method for obtaining a quote.
One of the biggest causes of bad credit is if you are making a
habit of late credit card payments. Late credit card payments are
like a huge red buzzer to lenders. It alerts them that you have
been irresponsible in the past with making payments, and statistically
speaking, you will be irresponsible again. That makes you a serious
risk to their lending institution.
Depending on the lender you may be able to buy out or buy down
the prepayment pentalty. Your interest rate will usually increase
when you buy out or buy down you prepayment pentalty.
In addition to pre-payment penalties lenders often charge higher
interest rates for borrowers with bad credit to offset the higher
risk.
Bad credit, no credit or good credit. If you are thinking about
refinancing you should check with your loan officer or mortgage
broker to see what you qualify for. Never count yourself out of
the game because you just might be suprised. With the new subprime
lender programs that have hit the market in the last few years your
chances have substantially increased to get qualified.
Because banks charge high interest rates on loans made to homeowners
with bad credit, these homeowners often have no intention of keeping
the loan for more than a year or two. They plan on refinancing their
mortgages to a lower rate at least once more when they have repaired
their credit profile. Therefore, homeowners with bad credit often
opt for Adjustable Rate Mortgages or a Hybrid Loan with a fixed
interest rate for the initial 2 years followed by an adjustable
rate for the remainder 28 years. These ARM's and Hybrids tend to
have lower starting rates than the 30-year fixed rate mortgages.
Bad credit refinancing may help some borrowers improve their credit
rating if the money from loan proceeds are used to pay off debts.
This can improve monthly cash flow helping them make all monthly
payments on time.
