How To Repair Bad Credit By Refinancing Your Home Mortgage
One of the best ways to repair your bad credit is by refinancing your home mortgage. The difficult part is finding a lender for your home mortgage since your credit history is not good. Forget about the banks and other financial institutions, they will not probably accept your home mortgage. So how do we find a lender that does?
Well, the answer to that lies in subprime lenders. Most subprime lenders are willing to offer loans to people with bad credit history. However do note, it does vary from one lender to another and you may have to visit a few before finding one that does.
You can find subprime lenders on the internet, through your friends or the local business directory. Some lenders have acquaintances with other lenders and they can do a referral on your behalf.
Since subprime lenders are taking a high risk by refinancing your home mortgage, you may need to find a few before you find one that offers you the loan. Subprime lenders also have their own approval process not much different from banks and financial institutions. Your credit history, assets, gross income level, current debts etc are all taken into consideration when determining whether you qualified for the loan except that they have a higher threshold compared to banks and financial institutions.
They usually charge higher interest rates due to the higher risk they are taking, so even though you may pay more, in my opinion, the benefits of recovering from your bad credit outweighs the disadvantage of higher interest rates.
Do take note, this is a temporary solution as you still need your pay your monthly refinance on time. If not, you will be in a worse position. I recommend getting a refinance home mortgage loan more than what you currently owe so that you have some money to clear off your credit card debts, bills etc. That also helps in your credit repair efforts.
Ultimately, this method of credit repair still require you to manage your finances better. I would recommend to setup the refinance payments to automatically deduct from your salary every month. In this way, part of your salary goes towards repaying the refinance loan before you even have a chance to take out the money. Most banks can set it up for you free or you can use the internet banking system to do it.
Remember, the only way to repair your bad credit is to have good discipline with your finances.
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Ricky Lim works in a finance company specialising in Home Refinancing Loans. Visit his site for countrywide home loans rates
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March 20th, 2009 at 1:56 am
Right now rates are LOW, I would just refi instead of the HELOC that might cost you 7% on up. Why pay for 2 transactions.
March 20th, 2009 at 2:05 am
Whether or not you personally can do any kind of refinance depends on your credit, income, and the value of the home.
If you're asking if no or low closing cost mortgages exist? Absolutely. Typically the rates are a little bit higher, but honestly your rate is really high right now, it should still be significantly cheaper than 12.75 even with the bank paying the closing costs.
By the way check your Adjustable Rate Rider from your original mortgage. Odds are there are caps on how much and how often your rate will adjust. If you're paying this loan off in the next few years it may not even be possible for it to adjust up to 18.75 that quickly.
March 21st, 2009 at 2:51 am
because the loan was secured by real estate it is technically a mortgage. If you do refinance you will be looking at a either a new conventional mortgage or a new home equity loan.
March 21st, 2009 at 4:03 am
If she has a VA loan then have her call the company that holds her mortgage, see if she can get a lower rate with a new loan. They may offer some type of VA streamline refinance so it will be fast and easy and a lower rate for her.
March 21st, 2009 at 3:44 pm
Honestly, no I don't. You have two years of security left at a rate that is currently pretty hard to find. If you are planning on being in your home only 3-4 more years, then find out what your adjustment cap is. All 5-year ARM's have an adjustment cap that limits what the loan can adjust to initially, and depending on what that is, you may find it in your best interest to ride it out until you decide to sell. You have to consider the cost to refinance versus the monthly savings you'll get by refinancing. So, let's say that you decide to stay in the home for three years. You're rate is fixed for the next two years, and depending on it's adjustment cap, let's say two percent, your rate would be fixed for the third year at 7.25%. Depending on the size of your loan amount, your payment may only increase by $100 a month. Let's say the cost to refinance is $2000, it would then take you 20 months to break even on your costs, and if you were only in the home for 12 more months it would not make sense to refinance.
If you would like further details, or if you would like me to take a look at it, email me directly, I would be more than happy to. Hope this helps.
March 21st, 2009 at 7:58 pm
If you could get 6% on a cash out refinance without PMI and minimal costs, the new first mortgage would give you a lower average cost of funds and monthly payments.
On the other hand, if you have to pay a couple thousand in closing costs on a new first, the low closing cost on the 2nd might be better. It may really come down to how much additional borrowing you would be doing at the higher rate vs. what the difference in closing costs is.
To do a proper analysis, I would need more information. I would suggest calling a couple banks and having them put together some good faith estimates. The analysis is not difficult so any competent loan officer should be able to help you with it. Watch out for pressure to refinance the first. If you are only borrowing a few thousand on the 2nd (home equity), you are probably going to be better off going that route, the the LO may try to steer you into a new first as they can't make any money on a little loan.
Good luck.
March 22nd, 2009 at 9:18 pm
March 23rd, 2009 at 12:09 pm
Try to hold out for 4.5% fixed for a 15 year loan. There is always the possibility of a 3.5% rate if the economy does not recover by summer..