REFINANCE » Refinance Your Mortgage

If your credit is less than stellar, you probably already know that you will have a difficult time getting the best interest rates on a mortgage refinance. Here are a few things you should know about applying for bad credit refinancing.

First, your interest rates will typically be much higher than a person with a credit score of 680 or above. However, you should shop around and see what is available to you; depending on the current interest rate, you might be able to find some type of financing with a better rate than what you currently have. Investigate several lenders for the best rate. If you are a member of a credit union or can qualify to become one, be sure to check their rates because they tend to have better options for people looking for bad credit refinancing.

Secondly, check your current mortgage and make sure that you have no pre-payment penalties associated with refinancing.

Third, be sure you know what your credit score and Debt to Income Ratio (DTI) is before you go shopping for a loan. This will be helpful in presenting the best picture of your credit history to potential lenders.

The good news is that it is not impossible to refinance your home mortgage with bad credit. In fact, being a homeowner may actually help to raise your credit score from where it was before you purchased the property. Refinancing is a form of secured debt against your house, and if you are refinancing to consolidate some of your other outstanding loans, this may be in your favor. Even if you have other defaults on your record, refinancing to consolidate and pay that debt proves to lenders that you are dealing with your situation and know how to handle money.

Also, refinancing can be a way to consolidate your higher-interest credit cards, loans, and any other outstanding debts that you may have at a lower rate which will save you a substantial amount in interest and allowing you to make one payment a month instead of several.

What is the best fixed rate mortgage for you? The answer to that question will be determined by your own special circumstances and needs. Are you refinancing your home to a better rate? Are you a first time home-buyer? Are you taking out a second mortgage to fund a special project, such as a home improvement? In each of these cases you will find that different mortgage terms might be the best choice for you.

The two most popular types of fixed rate mortgages are the 30 year fixed rate mortgage and the 15 year fixed rate mortgage. Other types of mortgages (for instance, 10 or 20 year mortgages) are also available, but in the United States, 15 year and 30 year terms are more common.

The main advantage of a fixed rate mortgage is that it allows you, as the borrower, to predict your future monthly payments in an accurate manner. Because the interest rate remains the same, your payments will be consistent and you wont experience large variations in the amount you are required to pay in monthly mortgage payments. You will pay the same amount through the entire life of the loan.

The main disadvantage of a fixed rate mortgage, as opposed to an adjustable rate or other type of mortage, is that your interest rate may be slightly higher over the fixed term. That is because the fixed rate offers you the security of knowing your payment will remain the same. You are not incurring the risk of market fluctuations in interest rates.

Finding the Best Fixed Rate Mortgage

To get the best rate on a fixed rate mortgage, its advisable to shop around and do your homework. Get quotes from several lenders and dont simply depend on one source. If you are a member of a credit union or other member-owned lending institution, be sure to get a quote from them as their rates can often be substantially lower than traditional banks. A skilled mortgage broker may also be helpful in finding you a good rate on a fixed rate mortgage. Ask your friends and associates if they can recommend an honest broker.

If you have filed a Chapter 13 or Chapter 7 bankruptcy, the bad news is that this filing will remain on your record for seven to ten years. However, if you are a homeowner, the good news is that this does not necessarily mean you will be unable to refinance your mortgage for that entire time. It...

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