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I Have Bad Credit. Can Refinancing Help My Situation?
By Francine L. HuffMortgage Credit Problems Columnist
Declining interest
rates are encouraging many people who own a home to refinance their mortgage. Although
there's been an increase in refinancing, some homeowners may have a tough time
finding a loan. But even if you have bad
credit, don't assume you can't get a refinance deal. You just may have to work
harder to find a lender willing to work with you.
Lower Interest Rates
In early 2008 mortgage interest rates fell below 6% for the
first time in a couple of years, according to the Wall Street Journal. Data from Bear Stearns Cos. indicated that
about 37% of homeowners could save money by refinancing. However, a bad credit
refinance involves a higher interest rate and closing
fees than those offered to people with good credit. If you can find an interest
rate at least 1% lower than what you're currently paying, it may be worthwhile
to look into refinancing. But you'll need to check out other pieces of the
equation as well.
How Much Can You Save?
You want the payments on your home to be as affordable as
possible, so there's no point in a refinance if the money saved on monthly
payments doesn't offset the cost of the new mortgage within several years--even
if you have bad credit. If you plan to sell your home before recouping the
costs of a refinance it may be better to skip it and focus more effort on
cleaning up your bad credit.
Do You Have Other Debts?
Even if you have bad credit and plan to use a refinance to
help with debt consolidation, it's important to run all the numbers. For some
people with bad credit, a refinance will help them get a lower interest rate
for debt consolidation, but the fees may not make it worthwhile. Debt
consolidation can be a smart strategy to help your finances, but avoid using a
refinance to get extra cash for home improvements or other unnecessary
expenses. It's also important not to run up new debts after a consolidation. You
want to clean up your bad edit, not make it worse by taking on new debts.
If you need helping finding the right loan, the Internet
makes it fairly easy to find lenders who specialize in borrowers with bad
credit. Finding a refinance deal may take some effort, but in the long run it might
save you a bundle of money.
Source
Wall
Street Journal
About the Author
Francine L. Huff is a
freelance journalist and the author of The
25-Day Money Makeover for Women. She
has appeared on a variety of TV and radio shows.
About the Author
Francine L. Huff is a freelance journalist and the author of The 25-Day Money Makeover for Women. She has appeared on a variety of TV and radio shows.
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