Emerging From Sub-prime: Bad Credit Home Mortgage Refinance
By Richard BarringtonMortgage Credit Problems Columnist
If you signed on for
a sub-prime mortgage, it's almost guaranteed that you are paying a higher
interest rate than more credit-worthy borrowers who got mortgages at the same
time. Still, even though the term of your mortgage might be fifteen or thirty
years, you shouldn't consider this higher interest rate to be a long-term
sentence. You can save money by refinancing as your credit rate improves, so
anyone with a sub-prime loan should make bad credit home loan mortgage refinance
an active goal.
Leaving Your Past
Behind
To a large extent, bad credit home mortgage refinance is about leaving your past behind. Let's assume you've kept up with your credit responsibilities since obtaining your mortgage. This means not only making your mortgage payments on time, but keeping up with all other loan and credit card payments as well. If you've been taking care of business your credit score should be improving and will continue to over time.
About half of your credit score is based on your past. Thirty-five per cent is based on your history of making payments on time, and another fifteen percent is determined by the length of your credit history. As time goes by, the credit problems that required you to get a sub-prime mortgage start to fade into the rear-view. Meanwhile, the length of your credit history continues to grow. All of this makes bad credit refinance a possibility.
Preparing For Bad
Credit Refinance
Besides simply relying on the passage of time, there are things you can do to actively prepare for bad credit refinance. All of the following should improve your credit score:
- Cut down on the total amount owed.
- Limit new credit activity.
- Pay collection accounts, liens, and judgments. Negotiate their removal from your credit report if possible.
- Clean up incorrect information.
The Magic Number for
Bad Credit Mortgage Refinance
As your credit scores improve, the potential savings from a bad credit mortgage refinance should grow. The magic number appears to be a credit score of 620- at this point available mortgage rates can drop by about one-and-a-half percentage points. However, FHA allows scores as low as 580 in the right circumstances. When you know your credit has improved substantially, check with a couple of lenders and see if your situation can be bettered.
Even once you cross that 620 score threshold, you should continue to try to increase your credit score. Interest rates drop incrementally with further improvements in credit score, and people with credit ratings of 760 or better enjoy the lowest available rates.
Sources:
About the Author
Richard Barrington is a freelance writer and novelist who previously spent over twenty years as an investment industry executive.
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