Having the pride of homeownership indubitably showers the homeowner with a feeling of triumph, stability and security. Owning a home is one of the fundamental pillars of the Canadian dream but a mortgage can feel like a heavy anchor especially for new home buyers.
The global pandemic has dramatically pushed the interest rates to ultra-low. Such record low rates are the driving force behind the upswing of mortgage refinances. With economic uncertainty, refinancing can help give you some breathing room.
Refinancing is beneficial for lowering your monthly mortgage payments and is a great choice if you are “house poor” i.e. When a lot of expenses go into miscellaneous housing costs. Being house poor only multiplies the problem if you are stuck with a mortgage.
However, the concept of refinancing becomes a little bit challenging for homeowners with low or bad credit scores, but that doesn’t mean you will be precluded from refinancing due to an imperfect credit score. Unfortunately, bad credit happens. Especially due to the Covid 19, global pandemic thousands of people became jobless, illness prevailed.
What is Refinancing?
Refinancing your home can be a great way to save thousands of dollars during the entire mortgage term and to lower the interest payments, even with mediocre or below-average credit.
Refinancing basically implies taking out a new loan with different terms to pay off the original mortgage. Though refinancing can be tricky with a blemished credit score.
Refinancing often offers you with one or more benefits, including:
a lower interest rate thereby a lower monthly payment and lots of savings in the long term; a shorter payoff term; offers the opportunity to cash out your equity for other uses.
Thinking of Refinancing but worried about the bad credit?
Don’t Worry, Even if your credit is poor, read on to explore the eight tip that can help you smooth the process
- Make sure to have all your ducks in a row
It is imperative to have all your ducks in a row before you begin with the process of refinancing as it can be a bit challenging to refinance with bad credit.
Having a bland or lacklustre mortgage application is surely not a good idea so make sure to include all necessary documents like tax documents, income statements and other supporting papers. Having more than the basic supportive information and documents will give you an upper hand and make you a good candidate.
- Have Realistic Expectations
If your credit is lower than the average, or not that great, have realistic, practical expectations while refinancing your mortgage.
It is important to understand and accept that you will not be offered the lowest rate in the market, we aim to provide you with various options and multiple lenders that best suit your requirement.
- Have Equity in Your Property
Sometimes refinancing becomes easy if you own more than it’s worth.
Most lenders grant mortgage or loan on the basis of the market value of the property and with the absence of your own investment, the mortgage becomes risky for the lender
Different lenders call for varying amounts of equity-like banks may desire you to have at least 25% of the home’s value invested, while other lenders might require 5% to 10%.
- Explore and Discover the best rate
It seems easy to replace a 4% interest rate with a 3% rate but it is not! There are additional costs and fees associated with the mortgage such as closing costs etc. As a rule of thumb, it is sagacious to refinance only if you are saving at least half a per cent on your current interest rate, although the more the better. So, scout out for the right rate, and make sure to exercise patience in the quest for an appropriate lender and rate that best suits your situation.
- Contemplate Government Insured Loans
As per the research, government-backed mortgages have become a popular choice as they often require less down equity and minimum requirements, making it easier to refinance with bad credit. Canada Mortgage and Housing Corporation can easily help you to understand your affordability and to determine whether refinancing is the right choice for you or not.
While it can be overwhelming to refinance with blemished credit, it is essential to understand lower interest rates can help you save millions of dollars over the years.
- Be Cautious
Never opt for refinancing if your home has decreased in value. As the refinanced mortgage will be granted on the current value of the property. Thus, the refinanced loan can be less beneficial or of less value than the original mortgage loan.
- Improve Credit Score
Bad credit is not everlasting, if you are not in a hurry to refinance consider improving your credit score by following good financial practices like making payments on time, avoid overspending from the credit card; have a stable job and so on. As improving the credit score enhances the chances of getting a good interest rate.
Refinancing your mortgage can alleviate some of the pressure and burden you may feel due to the current or original mortgage. It can lower your interest rate and costs to a certain degree.
If you are certain refinancing is the right and apt choice for you, MMC can help you throughout the process!