In the wake of the mortgage meltdown, many consumers are looking to refinance their home loans to get a better rate. However, consumer credit is at an all time low and lenders are scared to make new loans. Trying to refinance with bad credit is even harder than trying to refinance with average credit because of the added risk involved. Below are the most common questions regarding bad credit refinancing.
Q: How do I know a refinance is right for me?
A: In order to figure out if a refinance is a good idea you will need to calculate a break-even analysis. This calculation will tell you how many months it will take you to pay off the costs of the refinance. If it will take you 3 years to pay off the refinance and you only plan to stay in your home 2 years then you would obviously not go to the trouble of refinancing.
Q: Should I stick with my current lender for the refinance?
A: It is always a better option to go look for a new lender. Even if you end up refinancing with your current lender, you will at least know that you did not miss out on a better interest rate. This is a competitive market so deals are to be had everywhere.
Q: How should I use the money that I save each month?
A: Some people will be tempted to blow through this extra cash. This is the biggest mistake you can make. The wise choice is to use this cash to pay down your high interest credit cards and personal loans. By paying these debts down you will actually improve your credit score. Your improved credit score will lower your interest rates and make your monthly interest payments lower. As you can see, if you refinance with bad credit you will receive numerous benefits.