Looking to refinance your home but worried that bad credit might make it impossible to get a good mortgage? Poor credit may make it more difficult to obtain favorable mortgage rates, but there are still ways to benefit from refinancing even if your financial history has some problems.
What is a Bad Credit Refinance?
Refinancing means closing your current mortgage by paying it off and replacing it with a new mortgage that offers a lower interest rate, a different type of interest rate (usually fixed), or cash out from the equity in your home that can be used for other purposes. While someone with a good credit rating can easily refinance their home mortgage, it becomes more complicated if your credit is poor.
For many years, loans from subprime mortgage lenders have been the primary option for those with imperfect credit. These lenders provided higher interest mortgages and other loans to consumers who present higher credit risk. In recent months, all lenders have tightened criteria for lending, and many products that were previously available to people with bad credit are no longer offered.
Despite the challenges involved when seeking a bad credit refinance, it is worth investigating your options if refinancing will ultimately help you get financially healthy again.
Why Would You Refinance Your Mortgage if You Have Poor Credit?
Although it's not always an easy process, mortgage refinancing can be even more beneficial for someone with bad credit than for people with stable financial histories. Below are some of the advantages of this tactic:
Refinancing your mortgage is a smart way to consolidate bills. If late credit card payments or other high interest loans are the source of bad credit, paying them off with cash drawn from your home equity is a sensible way to consolidate debt - but to do so, you'll need to refinance your mortgage within the limits of having bad credit.
Refinancing your mortgage can allow you to take advantage of better market interest rates. If you currently have a variable rate mortgage or a fixed rate mortgage from a higher interest period, you might wish to take advantage of better rates or lock in a low rate. With bad credit, you won't be able to get prime rates, but you may still be able to lower your interest rate and save money in the long run.
Refinancing your mortgage can lower your interest rate. If you had poor credit two or three years ago but have taken measures to improve your credit score since then, refinancing your mortgage now could save you 2 or more percentage points on interest rates compared to the rate you received then - a savings that could substantially lower your monthly payments.
Pros and Cons of Refinancing Your Mortgage with Bad Credit
Refinancing when one has poor bad credit is not an ideal situation, but it does have benefits. Even a bad credit mortgage can help you improve your credit score if you keep up with the payments, although it can adversely impact your credit if you fall behind. If economic troubles, illness, or other factors make it impossible to keep up with your current payments, refinancing to lower your interest rates and bring down your payments to a manageable level can help you stay afloat and prevent negative marks on your credit.
A mortgage refinance for a person with poor credit can cost considerably more than a standard refinance in higher interest rates, larger fees, and higher monthly payments, increasing the risk of putting you into a negative equity situation in an economy with declining property values.
Although it's wise to keep an eye on payments and make sure you'll be able to keep up with them before signing on the dotted line, a bad credit mortgage refinancing can be a wise choice if your circumstances warrant it. Make sure to check with several lenders or use a reputable mortgage broker who knows the market and can find the best interest rates and lowest fees available for your credit level.
Showing posts with label Real Estate. Show all posts
Showing posts with label Real Estate. Show all posts
Thursday
Time to Remortgage?
Homeowners across the UK do not have a realistic outlook on interest rates for mortgage deals. This is according to new research by unbiased.co.uk, which revealed the average homeowner would only go for a fixed-rate offer if it was priced at 3.3 per cent. The website noted this is an "unrealistic" expectation, with one in six individuals claiming they would need to secure two per cent interest on a fixed-rate deal before switching from a tracker mortgage.
According to unbiased.co.uk, the general public have become used to the Bank of England setting charges at 0.5 per cent for nearly two years, clouding their judgement.
"Their ideas of what is a reasonable fixed-rate mortgage have become distorted in the low-interest rate environment," Karen Barrett, chief executive of unbiased.co.uk, commented.
Last month, the Council of Mortgage Lenders showed there was a five per cent drop in home loan approvals in November when compared with October. Enness private clients have 5 year fixed rates starting from 3.95%
If you are on a standard variable rate, a low tracker or are coming to the end of a fixed rate in the next few months you should start looking for a fixed rate mortgage now if you want to take advantage of the very low rates before they go up.
Recent increases in swap rates are starting to push up the cost of fixed rate mortgage deals. Since November of last year 2 year swap rates have moved from 1.31% to 1.72%, and 5 year deals from2.18% to 2.82%, before both easing slightly to 1.62% and 2.75% respectively, at the end of last week.
Since Christmas a lot of the banks have adjusted their interest rate outlooks so the waters are now a lot muddier; Societe General and BNP Paribas have both indicated they think the base rate will move before August, with the former suggesting that it could be by as much as 0.5%. Citibank have also re-aligned their thinking, although still trail their counterparts by a couple of months, but they see rate rises at the end of the third quarter of 2011, where again previously had suggested 2011 would pass without incident.
As a result two of the UK's biggest mortgage lenders Halifax and Northern Rock, have increased their fixed rates by 0.2% this week. Abbey and RBS are expected to increase theirs next week.
Fortunately there are still some that haven't moved their rates but they are urging customers, and in turn brokers, to examine their client's positions as believe it won't be much longer before their hands are forced as well.
According to unbiased.co.uk, the general public have become used to the Bank of England setting charges at 0.5 per cent for nearly two years, clouding their judgement.
"Their ideas of what is a reasonable fixed-rate mortgage have become distorted in the low-interest rate environment," Karen Barrett, chief executive of unbiased.co.uk, commented.
Last month, the Council of Mortgage Lenders showed there was a five per cent drop in home loan approvals in November when compared with October. Enness private clients have 5 year fixed rates starting from 3.95%
If you are on a standard variable rate, a low tracker or are coming to the end of a fixed rate in the next few months you should start looking for a fixed rate mortgage now if you want to take advantage of the very low rates before they go up.
Recent increases in swap rates are starting to push up the cost of fixed rate mortgage deals. Since November of last year 2 year swap rates have moved from 1.31% to 1.72%, and 5 year deals from2.18% to 2.82%, before both easing slightly to 1.62% and 2.75% respectively, at the end of last week.
Since Christmas a lot of the banks have adjusted their interest rate outlooks so the waters are now a lot muddier; Societe General and BNP Paribas have both indicated they think the base rate will move before August, with the former suggesting that it could be by as much as 0.5%. Citibank have also re-aligned their thinking, although still trail their counterparts by a couple of months, but they see rate rises at the end of the third quarter of 2011, where again previously had suggested 2011 would pass without incident.
As a result two of the UK's biggest mortgage lenders Halifax and Northern Rock, have increased their fixed rates by 0.2% this week. Abbey and RBS are expected to increase theirs next week.
Fortunately there are still some that haven't moved their rates but they are urging customers, and in turn brokers, to examine their client's positions as believe it won't be much longer before their hands are forced as well.
Tips to Buying a Great Home
Transitioning from a renter to a home owner is a very large step. Purchasing your dream home should be done with care. If you are not familiar with home buying, following these five steps will help you make a smooth transition to home ownership.
1. Hire a good realtor. When you are looking for a realtor you want to make sure that the realtor is familiar with the area that you are interested in and the type of home you are looking to purchase. A realtor that is interested and knowledgeable about your needs will help you find, and negotiate on, the perfect home.
2. Understand the real estate market for the area in which you are looking. Have home prices drastically declined? Are there a lot of empty properties? What have similar homes sold for in the recent past in that area? These are all questions that must be answered. Some of this information will be available from a qualified realtor, the rest you must research yourself. When you can answer these questions you will be able to judge if the area suits your needs.
3. Research the neighborhood. If you will have children attending school, find out if there are schools nearby and if they are rated well. If you need medical care on a regular basis, make sure you know how far you are from medical centers and hospitals. Locating the grocery store and shopping areas is important as well. People that utilize public transportation should check for bus service in the area. If you enjoy the outdoors, check the area for parks and recreation centers. Knowing the neighborhood prior to committing to buy a home will help ensure you are happy once you get there.
4. Be nosy when you are viewing houses. You should not be afraid to look in a closet or underneath a bathroom sink. These are areas that will show if there are any problems in the house. Faucets that leak are not apparent to the eye, but the cabinet underneath will have water stains. Turn faucets on, flush toilets and look at the seams in the walls. It may seem nosy, but it will help you avoid purchasing a home in need of repairs.
5. Get pre-qualified for a mortgage before you start shopping. When you pre-qualify for a mortgage you give yourself an advantage when shopping for your new home. You will know exactly what you can spend on a house, which will eliminate any problems that could arise if you bid on a home and then can't qualify. It will also give you the advantage to negotiate with the seller. Sellers who have qualified buyers look at their homes know that there will not be a delay in the sale. Because of this, they may negotiate to reduce the price to move the property.
1. Hire a good realtor. When you are looking for a realtor you want to make sure that the realtor is familiar with the area that you are interested in and the type of home you are looking to purchase. A realtor that is interested and knowledgeable about your needs will help you find, and negotiate on, the perfect home.
2. Understand the real estate market for the area in which you are looking. Have home prices drastically declined? Are there a lot of empty properties? What have similar homes sold for in the recent past in that area? These are all questions that must be answered. Some of this information will be available from a qualified realtor, the rest you must research yourself. When you can answer these questions you will be able to judge if the area suits your needs.
3. Research the neighborhood. If you will have children attending school, find out if there are schools nearby and if they are rated well. If you need medical care on a regular basis, make sure you know how far you are from medical centers and hospitals. Locating the grocery store and shopping areas is important as well. People that utilize public transportation should check for bus service in the area. If you enjoy the outdoors, check the area for parks and recreation centers. Knowing the neighborhood prior to committing to buy a home will help ensure you are happy once you get there.
4. Be nosy when you are viewing houses. You should not be afraid to look in a closet or underneath a bathroom sink. These are areas that will show if there are any problems in the house. Faucets that leak are not apparent to the eye, but the cabinet underneath will have water stains. Turn faucets on, flush toilets and look at the seams in the walls. It may seem nosy, but it will help you avoid purchasing a home in need of repairs.
5. Get pre-qualified for a mortgage before you start shopping. When you pre-qualify for a mortgage you give yourself an advantage when shopping for your new home. You will know exactly what you can spend on a house, which will eliminate any problems that could arise if you bid on a home and then can't qualify. It will also give you the advantage to negotiate with the seller. Sellers who have qualified buyers look at their homes know that there will not be a delay in the sale. Because of this, they may negotiate to reduce the price to move the property.
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