Should I Refinance My Mortgage if I Have Bad Credit?

By mortgagecreditproblems.com

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By Gina Pogol
Mortgage Credit Problems Columnist

All the hype about refinancing to lower rates may seem like background noise--it's out there, but there's no reason to pay attention if you have bad credit…or is there?

If you have bad credit, those ads touting 30-year fixed rate mortgages at 5.5% can be irritating. You'd never get approved for those rates, so you tune them out and write another check to your current lender instead. That might be a mistake. Ask yourself the following questions first--you could be a candidate for refinancing after all.

From Worse to Bad: What is Your Recent Credit History?

If you took out your mortgage loan when you had bad credit, and since then you have paid your bills on time, reduced your debt, or cleared up some collections, your grade might have improved enough to warrant a second look and a better rate. If your existing loan is a sub-prime loan or bad credit mortgage, check your documents and make sure that you don't have a prepayment penalty.

Bad Credit Plus Good Equity May Equal Savings: What is Your Home Worth?

In the last few years, prices exploded in many housing markets. Things have cooled since, but overall prices are still significantly higher than they were a few years ago. If your credit is bad but you have lots of equity, you could be approved for a better loan than you have now--with enough equity, even borrowers with credit scores below 600 have been approved for A or A- graded loans.

From Bad to Worse: Can You Head Off Credit Problems by Refinancing Now?

If you have an adjustable rate mortgage that will be resetting to a much higher rate, an avalanche of bills heading for collection, or too much outstanding credit card debt, you might be able to bail yourself out with a timely refinance. Fixing your rate before your credit gets worse, or getting cash out to consolidate debt and lower your total monthly payments may help you stay on your feet.

Even borrowers with poor credit histories may benefit from refinancing. You owe it to yourself to rethink your situation and see if you're one of them.

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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