If you purchased your home during a time when mortgage interest rates were high, you have probably considered refinancing your home mortgage for a cheaper rate. In recent years, interest rates have dropped significantly. Thus, allowing many to save thousands on their home mortgage. If you have excellent credit, you may be able to refinance your home without hassle. Then again, if your credit score is less than perfect, you should weight the advantages and disadvantages of refinancing.
What are the Advantages of Refinancing With Bad Credit?
Refinancing your home loan with poor credit has several advantages. For starters, refinancing affords you the opportunity to “cash-out" your home's equity at closing. The funds received from your refinance are great for paying off debt, home improvements, retirement fund, dream vacation, etc.
The biggest advantage of receiving funds at closing is the ability to payoff debt. In most cases, individuals acquired bad credit because of failure to repay loans and credit cards, usually because they could not handle the monthly payments.
Refinancing may be the cure for bad credit. By eliminating unnecessary expenses, and reducing debt, you increase your credit score and improve your relationship with current creditors.
What are the Disadvantages of Refinancing with Bad Credit?
While refinancing with bad credit is ideal for receiving cash from your home's equity, if you have a low credit rating, finding a suitable lender and rate is challenging. People refinance for various reasons. This includes obtaining a lower interest rate, switching to a fixed rate, lowering the length of their mortgage, etc. However, if you refinance with poor credit, lenders may not offer the best terms or rates. In fact, you may receive quotes with a higher rate.
Nonetheless, numerous lenders (sub prime, high risk) offer refinance mortgages to individuals with bad credit or no credit. Before signing the paperwork, carefully weight the advantages and disadvantages of a refinanced mortgage. Moreover, you must thoroughly consider the savings. Refinances involve huge fees. If your overall savings are marginal, refinancing is not a good option. Attempt to improve your credit score, and then refinance your home loan.
Here are our Recommended Bad Credit Mortgage Companies Online .
Carrie Reeder is the owner of ABC Loan Guide , an informational website about various types of loans.