Bad Credit Finance

The problem with having a bad credit history means that your credit score will be lower, and unfortunately the lower your score the higher the rate you are going to pay. This brings us to the questions of:

“Why am I looking to refinance my mortgage loan?”

The answer to the first question is unique to each person’s circumstances. Some people may just want to take advantage of the changing interest rate climate, thereby saving on a couple of percentage as the case may be. Other’s may be having trouble maintaining the payments as they have run into financial troubles, thereby extending the remaining loan term back to its original period and thus reducing the monthly payments. You may have a feature in your mortgage loan agreement that is about to kick in which moves the interest repayment into a higher bracket. The reasons can be many, which lead us to answer the second and perhaps more important question.

“Will I be able to refinance it on terms that are favorable to me?”

The inherent point in the above question is that even with a relative bad credit history you can refinance your mortgage loan. In order to do it favorably you should make sure you understand a few things. The level of your credit score determines the interest rate you can achieve, and should that level be too low you could encounter problems in trying to get a lesser rate. The reason of your poor credit score is another thing to look at, if your score is low because you failed to pay your existing mortgage loan in a timely fashion, then the chances of you refinancing it are slim. Seek alternative arrangements, such as a loan modification. This type of agreement looks at your existing loan and adjusts some of the factors that can influence your repayment amount. It has gained in momentum with the advent of the financial crisis and the situation that many people find themselves in.

If your credit score is low because of other debt incumbencies, such as poor credit card management and other high levels of debt, refinancing may still be an option even if the rate is a little higher. This will give the necessary breathing space that will allow you to service the other debt more easily as well as keep your mortgage loan. By doing this your score will slowly increase and get you to a better credit score, which will later lead to better rates. Another reason why you may be willing to secure a refinance option with slightly higher rates is if you have a loan agreement with additional factors that will be pushing your interest rate up anyway. Compare this to the future rate and repayments on this loan versus what you can get for refinancing and make a call.

Making your refinance deal favorable means you need to look around at the various lenders in the market. Some lenders actually specialize in bad credit loans and thus have a good understanding of you’re your requirements. Speak to them and understand their packages.

As stated, the key to all of this is your credit score. You can get your credit report for free, on a yearly basis from the three main credit reporting agencies– TransUnion, Experian and Equifax, but you may have to pay for the score. Understanding the score and its implications will help you in your refinancing journey. Generally with a score not less than 660 will give you a fair rate. The rate tends to decrease as your score goes higher. For each increment of 20 points the interest rate drops by 0.2%, going below 660 the rate increase by 0.5% for each 20 point decrease. If your score is less than 620, you may be required to provide further security to obtain a loan e.g. a co-signer but the rates increase dramatically and may not be worth it.

Once you know you have your report and know your score, you may want to try and fix it up before applying to refinance it, needless to say doing this may take a little more time, but the additional gains in interest rate can be worth it. Refinancing a mortgage loan, after acquiring a bad credit report isn’t difficult and could be worth your while in assisting in you with your overall credit management. A mortgage is often the largest and longest term debt anybody will take on, therefore making sure your repayments suit your pocket is your prerogative.