If you have bad credit and are trying to lower your monthly payments on your mortgage refinancing may be difficult. You may have an ARM (adjustable rate mortgage) that is going to increase your interest rate and you need to refinance in order to get lower monthly payments.
The first thing you need to find out is if your loan has an attached prepayment penalty. If you had bad credit when you obtained the loan then a prepayment penalty could be attached to the loan for the first 5 years. These prepayment penalties can be very complicated and are made on an individual basis. Make sure you read the fine print of your loan before you consider refinancing.
Next, after you have checked your loan to see if there are any prepayment penalties and are considering refinancing you need to know a few things. First, if you have a lot of equity into your mortgage even with bad credit you can often get a grade A loan because of the equity you have into the property. This often translates into a lower interest rate. The second thing you need to consider is having a cosigner. Most likely you will not be approved for a good interest rate if you attempt to refinance with bad credit. A bad credit refinance is easier if the individual you are cosigning with has excellent credit. This puts less risk on the lender and may help to avoid soft and hard prepayment penalties. The last thing that can help you with bad credit refinancing is if you have some form of collateral to put down on the loan. Depending upon the amount of the loan you may be able to put down land, other mortgages, vehicles, etc..on the loan. Banks refer to this as a secured loan and may also help you to secure a lower interest rate.
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