A Mortgage Refinance with Bad Credit - The Pros and Cons
To many, the term 'bad credit' is the end of the world when it comes to getting
financing in the near future. However, it doesn't always have to be like that, you
can take the bad credit mortgage refinance option!
Mortgage refinance vs. equity finance
It is essential at the outset that you understand there is a fundamental difference
between mortgage refinancing and equity financing. Basically, with equity financing
you are using the surplus amount you may have stored up in your property between
your outstanding mortgage amount and the appraised value of your home. However a
mortgage refinance is where you find a new lender willing to lend you the whole
appraised value of your property, the sum of which you then use to repay your existing
mortgage lender and the remaining sum you can utilize in any manner you wish. Because
of this, you are faced with a different set of problems than would be the case with
an equity financing.
The pros of a bad credit mortgage refinance
Aside from any possible equity financing you can do with your property, without
doubt the biggest upside to a bad credit mortgage refinance is the fact that it
is a long-term and cheap form of borrowing. Interest rates are likely to be low
and, possibly, can even be fixed. You could even possibly benefit from certain tax
advantages from a bad credit mortgage refinance.
Because of this, bad credit mortgage finance can allow you to do things financially
that may not otherwise be available to you as a person with a bad credit rating.
You could use the equity you free up after you repay your original mortgage lender
to invest in stocks and savings that will give you a better yield than you are currently
getting on the property.
Alternatively, you could pay off all outstanding debts you have so that you have
no interest and debt payments to make each month – merely a mortgage repayment.
Finally, you could even use the equity you get to invest in a long-term investment
plan like your pension. In fact the options are so limitless that you should really
consult with a financial expert who can best advise you on how you should put that
money to the best use for you!
The cons of bad credit mortgage refinance
The number one downside to any mortgage refinancing, whether it be bad credit or
otherwise, is the fact that mortgage lenders do not like to be repaid early. As
such they usually incorporate some expensive penalty clauses to try and make it
not worth your while repaying them early. With this in mind, you will need to read
your original mortgage agreement with your original lender very carefully to make
sure you won't have any onerous default payments to make; or, you could try and
arrange for the new lender to swallow these.
That said, if you make any arrangements with the new lender that they agree to pay
these fees for you, you then need to make sure they do not put any restrictive clauses
in your new refinance mortgage agreement that would prohibit you from refinancing
your mortgage again at some time in the
future if the occasion warrants such.
Without a doubt, as a person with a bad credit history and bad credit rating, a
bad credit mortgage refinance can open up avenues to you that would not otherwise
be there. You do, however, need to give consideration as to whether or not you want
to take this route. Not least because at the end of the day your house and family
home is on the line!