Bad Credit Home Mortgage Refinance – Should You Refinance

A bad credit home mortgage refinance is possible for people with previous credit problems. The interest rates will not be as low as those for consumers with good credit but you can still end up saving in the end.

There are several questions you should ask yourself when considering a home mortgage refinance. First of all you need to access your credit situation. If credit has been a problem for you in the past, you will want to take control of your finances before applying for a mortgage refinance loan. Refinancing can either help or hinder your current situation.

You will need to calculate all of the costs involved in refinancing before making a decision. A lower rate of interest and a shorter loan payoff time are two desirable perks of refinancing. Some people are only interested in lowering their monthly payment amount. However, you will need to remain in your home long enough to reap the benefits of refinancing. It makes no sense at all to refinance your home if you plan on moving within a few years. It is a good idea to figure how long it will take to recover the costs of refinancing. Some loans may offer a lower rate of interest but have excessive closing costs and fees. You will want to be aware of all costs involved including any additional income taxes you may be charged.

The Two Percent Rule

The two percent rule refers to your existing mortgage rate compared to current rates of interest. Many lenders recommend that you refinance if you can obtain an interest rate two percent less than your current rate. This is just a general rule and should not be the only deciding factor. Often the time you intend to remain in the home is just as important as the lower rate of interest.

On average the costs of refinancing will be at least three percent of your mortgage loan. This is a lot of money to spend and you will want to make sure you will be able to recover these costs when refinancing. If you are making payments on your first home and plan on buying a larger home in the future, a drop in the current interest rates may be the perfect time to purchase a new home. If you can obtain more home space for about the same price, this may be a desirable option.

1st And 2nd Mortgage Refinance Loan - Why Refinance Both Mortgages?

The hassle of making two monthly mortgage payments has prompted many homeowners to consider refinancing their 1st and 2nd mortgages into one loan. While combining both loans into one mortgage is convenient, and may save you money, homeowners should carefully weigh the risks and advantages before choosing to refinance their mortgages.

Benefits Associated with Combining 1st and 2nd Mortgages

Aside from consolidating your mortgages and making one monthly payment, a mortgage consolidation may lower your monthly payments to mortgage lenders. If you acquired your 1st or 2nd mortgage before home loan rates began to decline, you are likely paying an interest rate that is at least two points above current market rates. If so, a refinancing will greatly benefit you. By refinancing both mortgages with a low interest rate, you may save hundreds on your monthly mortgage payment.

Furthermore, if you accepted a 1st and 2nd mortgage with an adjustable mortgage rate, refinancing both loans at a fixed rate may benefit you in the long run. Even if your current rates are low, these rates are not guaranteed to remain low. As market trends fluctuated, your adjustable rate mortgages are free to rise. Higher mortgage rates will cause your mortgage payment to climb considerably. Refinancing both mortgages with a fixed rate will ensure that your mortgage remains predictable.

Disadvantages to Refinancing 1st and 2nd Mortgage

Before choosing to refinance your mortgages, it is imperative to consider the drawbacks of combining both mortgages. To begin, refinancing a mortgage involves the same procedures as applying for the initial mortgage. Thus, you are required to pay closing costs and fees. In this case, refinancing is best for those who plan to live in their homes for a long time.

If your credit score has dropped considerably within recent years, lenders may not approve you for a low rate refinancing. By refinancing and consolidating both mortgages, be prepared to pay a higher interest rate. Before accepting an offer, carefully compare the savings.

Moreover, refinancing your two mortgages may result in you paying private mortgage insurance (PMI). PMI is required for home loans with less than 20% equity. To avoid paying private mortgage insurance, homeowners may consider refinancing both mortgages separately, as opposed to consolidating both mortgage loans.

Mortgage Brokers For Home Loan Refinance

Online brokers negotiate financing deals with several lenders. This may mean that you can find a better deal through their site than by working with the lender. Not all mortgage brokers guarantee the lowest refinancing rates, so you should also compare brokers.

Understanding Mortgage Brokers

Mortgage brokers specialize in finding financing. They work with many lenders to offer you several financing choices. They partner with traditional banks as well as thrift institutions, credit unions, and mortgage companies. They can even connect you with subprime lenders if you have poor credit.

Not all brokers call themselves “mortgage brokers.” But any site that offers bids from more than one lending company is a broker. Make sure you know if you are dealing with a broker, since this will affect your closing costs.

Brokers collect a fee for each loan they refer to a lender. Sometimes you will pay this fee as part of the closing costs, other times it will come out of the mortgage company’s fees. Even with the additional expense of a fee, brokers can usually find you better deals than if you shop alone.

Working With Broker Sites

Online broker sites enable you to make quick comparisons from basic financial information that you provide. Usually, you will need a general idea of your credit score, loan amount, and down payment. The quote you receive gives you a rough idea of rates and closing costs.

Take the time to check with a couple of broker sites to find the best deal. Each broker works with different lenders and negotiates unique deals. Spending a few extra minutes analyzing quotes can save you thousands in interest costs.

Taking The Next Step

Once you have narrowed your choices down for refinancing, request a detailed quote from the lender. This will require the financing company to look at your credit score. You don’t want to request too many detailed quotes, since your credit score is temporarily lowered every time a lender makes a credit inquiry.

The detailed quotes will list rate along with terms, such as required points. Even with this accurate quote, it can change hourly based on market indexes and bank rates. If you find a good deal, it is best to act on it quickly to lock in rates.