Bad Credit Refinance
Many people live from paycheck to paycheck. A few unexpected expenses can make the difference between meeting all your financial obligations and missing monthly payments. Unfortunately, lending institutions aren’t very forgiving and those missed payments can stay on your credit report for years after you’ve cleared up the debts.
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But a bad credit rating doesn’t mean you can’t take advantage of the lower interest rates. You can still refinance. You’ll just have to pay more than someone with a good credit rating.
Refinancing can be a way to clear up high-interest credit card debt. The interest rates on secured loans, like primary mortgages, secondary mortgages or home equity loans, are lower than the rates charged on unsecured debt, like credit card debt. Even with the higher rates charged for bad credit, you might come out ahead by refinancing and consolidating your debt.
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Before you refinance, make sure you’ve totaled up all the costs. Home loans stretch out over decades. Does it make sense to pay interest for all those years? Sometimes it’s better to pay off the loans as quickly as possible to avoid the interest charges.
Another angle to consider is to refinance, consolidate your debt and then make extra payments. This might be difficult in the short term but you can take advantage of the lower rates and still pay off the debt early to avoid those long-term interest fees. If you plan on paying off a loan early, ask about any pre-payment penalties.
There are many options for refinancing and it’s in your best interest to examine as many as possible. Does a refinance make more sense than a second mortgage or a home equity loan? Take a look at the current interest rates and compare them to the interest rates you have on your current mortgage.
If you have a high rate on your primary mortgage, it probably makes sense to refinance your old loan amount and the new loan amount as a primary mortgage. If you have low rate on your primary or if you want to pay off the new loan amount quickly, a second mortgage or home equity loan might make more sense.
Second mortgages and home equity loans generally have higher interest rates than primary mortgages. But the higher rate can be offset by a shorter term.
Before you refinance, shop around. This is true for everyone, good credit or bad. Its especially important when you don’t have good credit because the "sub-prime" lenders can charge very different amounts.
