Poor Credit Refinance

People with poor credit pay a lot more than those who have perfect credit. This fact of life is something that many of us lost sight of during the sub-prime mortgage crisis, when many unscrupulous lenders extended home loans to buyers who didn’t really qualify for them. That bubble famously burst nearly two years ago; since then, those with poor credit have been left in the lurch. If you’ve been trying to refinance with poor credit, then you’ve probably been turned away numerous times. Things are a lot different now than they were just a few years ago, and if you’re thinking about refinancing with poor credit there are many things that you should know.

Tougher Regulations Make Refinancing with Poor Credit More Difficult

Back before the sub-prime mortgage crisis got into full swing, many lenders happily lured people with poor credit into dubious refinancing schemes. Low introductory rates and other exciting promises were dangled before people with poor credit, and the promise of lower monthly mortgage payments enticed many people to go through with refinancing. That same promise continues to be made by many lenders, making refinancing a very alluring prospect. If your credit is poor, though, then refinancing probably isn’t a very good option for you.

Should You Take Advantage of Low Prime Interest Rates?

Low prime interest rates are a top reason for people with poor credit try to refinance their home loans. On paper, refinancing in such a situation looks smart; many lenders will run the numbers and show you how much your monthly mortgage payment will go down. With a bad credit score, though, you’re not going to be able to get the best rate. Even if your new interest rate is lower, it’s often not low enough to make up for the fees, penalties and closing costs that are often rolled into the deal.

Poor Credit Refinancing: More Trouble Than It’s Worth

The bottom line is that it only makes sense to refinance if it’s going to save you money. With poor credit, you are unlikely to be approved for a new home loan in today’s rocky financial climate. Even if you are approved, you are very unlikely to qualify for the best interest rates. On the remote chance that you do qualify, you will probably be slammed with closing costs and other fees that are going to cancel out any savings that you’re anticipating.

An Alternative to Refinancing with Poor Credit

Instead of trying to refinance with poor credit, you’re better off taking the money that you’d spend on a new loan and using it to repair your credit. Chip away at old debt and sign up for credit counseling in order to improve your credit score. As your credit score improves, you will be more likely to qualify for the low interest rates that make refinancing a sound financial option. Although there are still lenders out there who will encourage you to refinance with poor credit, you should be very wary of doing so.