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