subject: Pros and Cons of Bad Credit Home Refinancing [print this page] Pros and Cons of Bad Credit Home Refinancing
Refinancing a home loan must be considered with extra caution. Consumers with poor credit score should particularly be more careful when considering bad credit home refinancing. There are advantages and disadvantages of taking such loans.
In some cases, a bad credit home refinancing product is a good financial option that would help people to meet their financial goals. Such a loan could bring about good and bad consequences and implications at the same time. As you consider applying for and taking a bad credit mortgage refinance product, it is important that you take note of the possible advantages and disadvantages of the product.
What Are The Advantages
For the advantages, a bad credit home mortgage refinance product could bring about a better interest rate. However, such ideal rates could be rarely found or acquired, especially because such loans are tailored for people with poor credit scores. As always, bad credit history is a strong detriment to getting loans with lower rates and costs. However, you should not stop on scouting the market because it is still possible to find a bad credit home loan refinance product with lower interest rates than your current mortgage.
The refinance product could also be your shield against the adjusting rates of your original or existing home loan. Refinancing your home loan could be a good choice if you intend to reduce risks coming with interest rates. Your adjustable rate mortgage (ARM) might be set to increase interest rates in the coming months. It would be better if you could find a bad credit home refinancing product with lower rates compared to your new ARM rate.
You could significantly lower your monthly payments. This is possible because your refinance loan could be smaller than your original mortgage. You could also ask for a better term so you would not be feeling the crunch of your monthly amortization.
What Are The Disadvantages
For the disadvantages, a bad credit home refinancing product could incur inevitable costs. This is because your refinancing loan is actually a new loan. As such, it would logically require new loan application fees, appraisal fees, closing expenses, title insurance, prepayment penalties, and other relevant charges.
The refinance loan could also possibly lengthen the total duration of your mortgage. This is because as mentioned, such a loan is a new one. Thus, it would start its count for maturity from Day 1. You would not continue counting the maturity of your original mortgage since you would repay it in full using proceeds from the bad credit home refinance product, which you would repay every month.
It could also be harder for you to find a good bad credit mortgage refinance provider in your community. There are numerous lenders out there but not all should be trusted. You need to do ample and further research efforts to make sure you are choosing the best refinance loan provider there is.
