Who needs a bad credit refinance loan?
Anybody who is a homeowner and has several high interest debts to service ought to think about a bad credit refinance loan; high interest credit cards, car loans, or other forms of installment debt are all eligible. Wait, isn't the interest rate on my bad credit refinance loan going to be much higher than for someone with good credit? Yes, the interest on a bad credit refinance loan is typically two to six percent higher than that of a refinance loan for someone with excellent credit. That being said, a bad credit refinance loan of 12 percent is much better than paying 21 percent on credit card debt that never seems to lessen. Because the bad credit refinance loan is most likely spread out over 30 years your monthly payments are going to be lower than if you were to service all those debt individually. With consolidating those other high interest debts into your mortgage loan you are now getting a tax break due to the fact that they are rolled into your mortgage payment. Those high interest debts are now stretched over a longer period of time so in effect, you will be paying on them longer, but it is a trade of for paying lower interest and tax breaks provided by the consolidation.
But can I get a lower rate?
Okay, we have established that, of course, the interest rate on a bad credit refinance loan is going to be greater than that of a refinance loan for someone possessing excellent credit. Similarly, the cost of setting up a bad credit refinance loan may be more expensive compared to a regular refinance not under credit restraints - talk to several lenders about this, there are plenty of sub-prime lenders in the market now willing to make deals. Depending on how well you have been keeping up with your mortgage payments over the past 24 months, you might be able to get a better rate even with the consolidation of outside high interest debt. If you make payments on time for two solid years you should be able to refinance at a substantially lower rate.
The total financial impact of a bad credit refinance loan can be more complex than figuring out the impact of a traditional loan not including outside debt to be consolidated because there are more variables. You have to consider whether you can even service your current debt obligations without lengthening the debt repayment period and lowering the interest rate, essentially what a bad credit refinance loan does; you also need to understand which way interest rates set by the Federal Reserve are moving. That will help you answer the question: If I do make all my payments for the next 24 months, will I be able to refinance my debt at a rate to where the amount of money I save each month will be worth going through the process and incurring refinance fees all over again. When you get to this point you need to start considering all of the questions that surround any refinance situation.
Other Options
Do know that refinancing your primary loan to get cash out or consolidate debt is not the only option, home equity loans and lines of credit are also viable options. Depending on your credit, interest rate and debt servicing or cash needs refinancing your primary loan might not be the best option. The most efficient way to wade through all your different options and learn what you need to learn to make an informed decision is to speak with loan professionals who deal with bad credit refinance situations like yours everyday. Read all you like, but when it comes down to it, talking to multiple experts is the best way to get the information you need. Take advantage of Mortgageloan.com's free comparison quote service. Talk with the professionals, see what they have to say, and then decide for yourself.
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