When it comes to refinancing your mortgage, you don't need to worry about your equity level unless you are planning to apply for a prime loan. With bad credit, you will work with a subprime lender, who isn't concerned about equity levels. That means you don't have to carry private mortgage insurance if you don't have 20% equity built up.
Issues With Equity And Refinancing
The ultimate goal of refinancing is to save you money, usually through a reduced rate or better caps on an adjustable rate mortgage. It is even possible to refinance a 100% of the value of your home, but these have higher rates.
Equity is not an issue, unless you want conventional rates with a prime loan. It is possible to qualify for these types of loans with poor credit, you just need to have a significant equity level – over 50% in some cases. Lenders will also consider other credit factors, such as cash savings, income level, and overall debt load.
Saving Money With A Refi
Before you refinance your mortgage, make sure that you will see an actual savings. That means asking for loan quotes and comparing the interest costs to your current mortgage. There are a number of helpful mortgage calculators online which makes this a simple task.
To get the lowest rates, ask for an adjustable rate mortgage. Usually these types of loans offer the best rates for those with adverse credit. You can also lower your rates by selecting a 15 year or shorter loan.
Comparing lenders and their financing offers will go a long way toward reducing your loan costs. You can see a savings of thousands by finding the best deal on rates and fees. The annual percentage rate (APR) factors in both the cost of interest and closing costs.
Keep Your Options Open
Before signing your refi loan contract, make sure that you have the option to refinance in the future without having to pay a large fee. That way you can save more money when your credit score improves. You may also be able to negotiate an automatic refi with your lender when your credit score reaches a certain point.
