Bad Credit Refinance

There are primarily two reasons why the financing of a mortgage was at a high interest rate, either the market mortgage rates were simply higher or the borrower’s credit history was not very strong at the time the loan was purchased. So when one seeks to refinance their mortgage they have to check their credit history at present, because what is the difference between a normal credit refinance and a bad credit refinance? Common sense would indicate that the bad credit refinance would definitely have a higher interest rate than a good credit refinance.

Why would a person go in for a bad credit refinance in the first place when obviously the interest rates are going to be higher? There are many scenarios where a bad credit refinance would prove to be beneficial. Some of the scenarios are illustrated below

One of the reasons of getting a bad credit refinance could be to obtain a lower mortgage rate. An individual would have obtained a mortgage a couple of years ago after filing for bankruptcy. Obviously the interest rates on this mortgage would have been very high. But over a period of years say the individual has managed to make improvements to their credit history and hence is seeking to refinance his mortgage at a lower interest rate as this would substantially reduce the monthly payments towards the loan.

Another reason for a bad credit refinance could be to consolidate bills. If an individual has many tapped out credit cards with high interest rates and other forms of debt like auto loans, a bad credit refinance may be the way to go as paying an interest rate of about 10-14% may be better than paying 25-30% interest on multiple credit cards or debts. Since the bad credit refinance is available for a much longer period of time the load of having to make higher payments per month is now reduced due to increased duration of the loan.

Typically the fees associated with a bad credit refinance is much higher but if regular monthly payments are made over a period of years it would contribute towards improving your credit history and in turn help you decrease the interest rate on the loan.