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Getting the best mortgage loan with a bad credit
California Bad Credit Mortgage
Bad Credit Mortgage Refinancing
Carrie Reeder
Bad credit mortgage refinancing loans are used to solve two
different problems.
Problem Number One: The homeowner has bad credit, significant
high interest credit card debt and a home with substantial
equity. In order to pay off the high interest bills, the person
refinances his/her home and cashes out all or part of the
equity. The cash from the equity is used to pay off the high
interest obligations. Although the interest rate on the bad
credit mortgage refinancing loan may be higher than that of a
conventional loan, the house payment should still be less than
the total of the high interest consumer debt.
A bad credit mortgage refinancing where the owner intents to use
the cash from the home's equity to pay off bills is called a
debt consolidation loan. The value of the home being refinanced
must have grown so that the home's appraised worth will justify
a larger loan. The new loan amount must be high enough that the
owner can cover the loan's closing costs and still have enough
left over to pay off the credit card debt.
A bad credit mortgage refinancing such as this can have several
advantages. The term of the loan will be longer. Since even a
high interest subprime loan carries a lower interest rate than
do high interest credit cards the new house payment will be
smaller than the total of the old house payment and the consumer
debt payments. However, choosing to refinance in this manner
carries risks. If the homeowner does not change the behavior
that led to the high debt, even more high interest credit card
bills may be accumulated. Since the homeowner's equity has
already been "cashed out" of his/her house the only alternative
in a money crunch may be bankruptcy or foreclosure.
If a homeowner chooses a debt consolidation loan as the method
of bad credit mortgage financing, it is imperative to use the
cash received to pay off the accumulated debts. Credit
counseling to keep from returning to poor credit practices
should also be considered.
Problem Number Two: The homeowner had bad credit when the home
was originally purchased and had to take out a high interest
subprime mortgage loan at that time. Two or more years have
passed since the loan was made during which time the homeowner
has made all of the loan payments on time and has incurred no
other bad credit. Now the time has arrived to refinance the loan
and receive a better interest rate.
Even with two years of excellent credit history, a homeowner
trying to refinance a bad credit mortgage may not be able to
obtain a conventional low interest loan. The type of loan that
can be attained will depend on a variety of factors such as
current income and how much debt the homeowner has.
Refinancing a bad credit mortgage under these circumstances may
be a good idea if the following two statements are true.
1. The new loan will carry an interest rate two or more
percentage points lower than the current loan.
2. The homeowner plans to stay in the house for three or more
years.
About the author:
Carrie Reeder is the owner of www.abcloanguide.com, an
informational website about various types of loans. View her
recommended Bad Credit Mortgage Refinance lenders.
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