Mortgage Refinancing - Know the Details of Bad Credit Loans

By mortgagecreditproblems.com

By Gina Pogol
Mortgage Credit Problems Columnist

When shopping for a mortgage, everyone looks at the Annual Percentage Rate (APR). APR is important, but other figures can be more important when signing bad credit refinance documents.

The APR is disclosed in your Truth-in-Lending (TIL) form and reflects the cost of your mortgage over the life of the loan. This is less important for a bad credit loan because you shouldn't plan to keep it for more than a couple of years--a bad credit mortgage should be used to get you out of temporary trouble, not finance your mortgage forever.

Loan Fees Matter

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Two loans can have the same APR but be very different. One carries a higher rate but no fees, and the other carries a much lower rate and costs several points. Take the loan with lower fees. In general, you don't want to pay to buy a rate down for years and years when you probably won't have the loan that long. Loan fees are found on your Good Faith Estimate (GFE) and you should compare estimates between lenders before signing anything.

Refinance Now, What Happens Later?

Many bad credit refinance mortgages carry prepayment penalties, some as long as five years. What you don't want is a loan that's fixed at a decent rate for two years but has a five-year prepayment penalty. You could end up with a very high rate for the remaining three years and no way out of it. Other loans start at a higher rate, and your rate can actually lower over time if you make your payments as agreed. All adjustable rate mortgages and loans with prepayment penalties have "riders" or additions to the standard loan documents, which state how your rate or penalty is determined, what you pay, and when. Read and understand these before signing--misunderstanding these riders can cost you, and no one but you is responsible for what you sign.

Loans come with piles of documents to read. The most important disclosures are the TIL form, the GFE, and any ARM or prepayment riders that show what your loan will do in the future. Read and understand these critical forms before agreeing to any bad credit refinance loan.

About the Author
Gina Pogol works as a writer and editor for an online media company. She has a BS in financial management, and was formerly a business credit systems consultant with Experien and a mortgage loan consultant.

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