Five ways to know if you should refinance

By Michele Lerner
Mortgage Credit Problems Columnist

If you currently have a bad credit mortgage and have not resolved your credit problems, then you may not qualify for low mortgage refinance rates. Even bad credit mortgage lenders require a thorough review of your credit history, your debt-to-income ratio and the amount of equity you have in your home before approving a new loan. Complete the form on this page to find out if you qualify for a home refinance.

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You may be considering using a home refinance to resolve your debt problems. If you have significant equity in your property, you may be able to pay off your debt, but remember that this may increase the size of your mortgage payment even if you get a lower interest rate. Before you sign on for a bad credit mortgage refinance, make sure you review the following issues:

  1. Can you pay off other debt? If your goal for a refinance is to eliminate your debt, you must realize that you are simply shifting debt from a credit card to your home loan. In addition, you are changing unsecured debt into secured debt against your home. If you cannot keep up with the payments you could lose your property.
  2. Can you afford the new monthly payment? If you wrap old debt into a new home loan, your monthly mortgage payment may increase even with a decrease in the interest rate.
  3. Is the refinance cost affordable? Every home refinance has closing costs, usually ranging from three to six percent of your loan amount. If you have enough equity you may be able to wrap those costs into the new home loan, or accept a higher rate in exchange for the lender paying those costs.
  4. How long do you plan to stay in your home? If you plan to move within a few years you may not recoup the money you spent on refinancing. A lender can help you make the calculations that will show you not only your new monthly payment, but also how long it will take you to pay off the refinancing costs.
  5. Can you avoid new debt? A new home loan that eliminates your credit card debt is only worthwhile if you have the discipline to avoid accumulating new debt. Make sure you have a financial plan in place to repay your new mortgage and to rein in your spending.

A home refinance can be a great financial move, especially if you have improved your credit and can eliminate a high interest bad credit mortgage loan along with consolidating other debt. Complete the form on this page to find out if you qualify for low mortgage refinance rates.

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