Taking on a huge debt can place considerable pressure on us, and usually for a lengthy period of time. It is the chief concern when buying a home, with the commitment involved typically lasting three decades. Such pressure can eat away at our credit rating, until finally we find ourselves in financial hot water. But home loan refinancing with bad credit is a possible escape route.
Of course, having bad credit can make it difficult to get a home loan in the first place, though it is not impossible. But whether or not the difficult financial situation existed before or during the mortgage, bad credit home loan refinancing can alleviate the situation.
In fact, refinancing home loans despite bad credit has very little to do with your credit rating, and much more to do with the property that you have.
Understanding Refinancing Loans
The concept of refinancing can seem a little confusing, but it is actually quite straightforward. The basis of home loan refinancing, with bad credit a factor or not, is that the loan itself is reassessed according to the current value of home equity. What this means is that the remaining balance of the existing loan is bought out with a smaller home loan.
This is possible because each time a borrower repays their existing home loan, the amount owed is reduced. So, home equity, or the value of the home free from debt, increases. What bad credit home loan refinancing does is allow the borrower to agree a lower monthly repayment sum on the basis that the new home loan is smaller than the first.
For example, if a home is worth £250,000, with payments of £1,200 per month, then after 5 years perhaps as much as £60,000 of the mortgage has been repaid. Refinancing home loans despite bad credit means a sum of £190,000 is borrowed to pay off the balance. Monthly repayments are, therefore, lower.
The Advantages of a Refinancing Deal
Having lower repayments is the key advantage of getting home loan refinancing, with bad credit usually meaning that every possible break is needed to ensure not falling behind repayment schedules. But there are other advantages too.
The most obvious is that, since the original home loan has been repaid in full, the credit score improves accordingly. And with an improved credit score, lenders charge lower rates of interest. So, bad credit home loan refinancing actually improves credit ratings.
Of course, this also adds to the savings made, with lower interest rates applied to a lower principal sum ensuring that monthly repayments are significantly less. In fact, by refinancing home loans despite bad credit, existing monthly payments of £1,200 can be replaced by a loan requiring just £800 per month.
Getting a Refinancing Loan
It is not particularly difficult to get approval on home loan refinancing with bad credit, as long as the terms being sought are reasonable. Often, your own mortgage provider is the best option, since they approved your original home loan, and know your payment history very well. Having a good relationship with the lender is also invaluable when seeking a bad credit home loan refinancing deal.
However, if the new terms are not ideal then there are plenty of other lenders to go to. This can mean a longer application process but since refinancing home loans, despite bad credit, can greatly alleviate financial pressure, the effort is worthwhile.
The bottom line is that through home loan refinancing with bad credit, the financial pressure on your shoulders lifts and your life improves.