The Possibility of Mortgage Refinance with Bad Credit

March 27, 2009 by  
Filed under Home Loan Refinance

Being part of the ordinary and regular bunch, there comes a time when a mortgage loan needs to be taken for some reason. Some people though can lose control of their finances which can lead to the neglect of some other expenses like paying off their mortgage. This can get out of hand and can spiral to cause more problems. A way to get out of a mortgage, or at least get out of the loan to a better one, is to refinance.

Refinancing mortgage is basically having someone pay off your loan and pay that someone instead. The way it is advantageous to the debtor is that this new lender may offer better conditions, like lower interest rate or favorable terms, which partially alleviates the burden of the mortgage. Of course it does not mean you’re out of the loan but simply that you’re on easier water.

Mortgage refinancing, however, is not for everyone. Oftentimes, people who realize they needed to refinance are already in too much debt that refinancing with their existing status can prove to be counterproductive. Series of credit card and loan non-payments can result to what is called bad credit. This can significantly lower one’s credit rating which subjects him to harsher interest rates. This could mean that compared to the original loan’s interest rate, refinancing will actually give you a higher interest rate.

However, it is important to note that bad credit does not mean the end of the world. Mortgage refinancing with bad credit is still possible. All you need is the tenacity to look for lenders that are willing and more importantly, can offer terms and conditions which you can abide to in order to better your credit rating. A good place to look for a lender to refinance your loan is your lender himself. Renegotiating the loan is a very practical way yet a lengthy and complicated one.
There is, however, another way that will still involve your original lender. Strange as it may sound, falling back on your payments can actually entice them to lend you further. While this may seem ironic and is some form of vicious cycle, it is actually just business. They just don’t want you to default.

One reason for this is that the value of the house on your mortgage is lower than your actual debt. This can be due to several economic and social factors that have occurred as you are paying off your mortgage loan. A company can’t simply accept this already devaluated property in lieu of a balance that still has a chance to be paid off. That chance can be provided by your original lender by refinancing your mortgage loan so that in this way, as time goes, they will eventually get their money’s worth. That’s if you’ll stick to paying it, which you should really do.

Another reason they don’t want you to default is because potential income is lost when you do. Lending company don’t lend for public service but to earn from doing it. Going default means that they can at best get their money back, but the potential income from interest is lost. Refinancing mortgage allows them to give you the finances to resuscitate your mortgage and financial stability, and get them their bottom line.