You May Still Get Refinancing

Some people are afraid to try to refinance if they have bad credit. Even with less than perfect credit, you can still get a refinanced mortgage with decent interest rates.

You may have a hard time getting unsecured debt, like a credit card, but most banks will still make secured loans if you have collateral, like a house. Their risk is limited since they can take possession of the home if the borrower fails to make regular payments. While most lenders are cautious about lending to those with a blemished credit history, if the borrower is not underwater (owing more than their house is worth) on the current mortgage, securing a refinanced mortgage at a better rate is achievable. This is absolutely NOT the time, however, to use your house as an ATM machine. Some of the more frivolous items like a new car, big screen TV and fancy clothes may have to wait. In fact, most banks won't even allow it, in this economy.

Whether you have good credit or bad, the decision of whether you refinance or not should be based on the current mortgage interest rate. If you plan to stay in your house at least three more years, even bad credit refinancing may be helpful. It generally takes about 4-6 years to recoup the refinance fees, (usually around $2000-$3000.) The savings on a lower interest rate mortgage will return those fees over time, along with a lower monthly payment. For instance, lowering a 6.5% 30-year fixed by just ½% will save thousands over the lifetime of the loan.

Before jumping on the bandwagon and refinancing your mortgage, do some research. You can go online and find free mortgage payment calculators to compute your proposed monthly payments, interest savings and different types of loans.

Keep in mind that the loan payment does not include taxed and insurance, unless stated otherwise. Ask a potential lender what a PITI payment (principal, interest, taxes, and insurance) would be for the amount you want to refinance. Be sure to leave room for your budget to expand. A $1,200 payment this year could be a $1,300 payment next year.

Most lenders will require homeowners and mortgage insurance, especially with damaged credit. It's not wise to take the default homeowners insurance that the lender provides. It's almost always more expensive than what you can find on your own.

Most of all be optimistic. Creative thinking and perseverance can prevail in any economy. Don't be discouraged from investigating a bad credit refinancing. In the end, it could be the best move you ever made.

About The Author Learn how you can save money even with bad credit refinancing. You don't have to have perfect credit to refinance your mortgage. Learn about your different options to refinance.