Homeowners who bought their home back when they had a bad credit score probably did not get a very good interest rate on their loan. This is to be expected. But, they could also choose to consider themselves lucky that they have a mortgage at all: many people these days who have a bad credit score are having trouble qualifying for a loan at all. That is because banks and other lenders are afraid of lending to so-called "sub-prime" individuals, given the recent housing and mortgage fiascos.

When To Consider Refinancing Your Home

If you currently have at least some equity in your home, this may be as good a time as ever to refinance. This is particularly true if you believe you can secure a better interest rate than you qualified for when securing your current mortgage. In general, there are three possible reasons why you may now be eligible for a lower interest rate:

1. if average home loan interest rates have gone down since you signed your current mortgage

2. if your current loan is an adjustable rate mortgage and the fixed rate time period (usually 3, 5 or 7 years) is about to expire or has expired

3. if your credit score is significantly better than it was before

Refinancing Bad Credit Home Loans With Mortgage Refinance

If any or all of these situations apply to you, this may be an excellent time to apply for a refinance mortgage loan. Refinancing simply means paying off your existing loan principal with a new loan. The new loan will usually have different terms, a lower interest rate, or both.

Even if your situation does meet the above-mentioned conditions, it may still not be a good idea to refinance your home. For example, if your current loan's term is already half-way up (such as being 15 years into a 30-year mortgage), refinancing may not be the best move. This is because, currently, a large portion of your monthly payment is going toward loan principal. If you refinance, most of your payments for the first few years will go toward paying interest only.

Also, if you do not plan on staying in your home for more than 3-5 years, this may also be a good reason not to refinance at this time. This is because refinancing a mortgage is not free, meaning some costs will be incurred in the process. If you refinance and then sell your home too quickly, you actually may lose money on the deal - even though you may have achieved lowering your monthly payments in the short term.

Tips To Follow When Applying For A Mortgage Refinance

If you have decide that refinancing is for you, here are some tips that can help you make the application process as smooth as possible:

1. Contact multiple lenders, and be sure to record what you find out. Use Microsoft Excel, any spreadsheet application, or even pen and paper to record your findings.

2. You will be required to supply your lender with certain information related to your financial background. Some of this information will be available via your credit report. However, be prepared to share details about past and current employment and income.

3. You will also be asked to present information on your current assets and debts.

4. Decide in advance whether you believe you will prefer a fixed-rate mortgage or adjustable rate mortgage (ARM)

5. Research your current mortgage's interest rate so that you will know whether the offer you receive is a "good deal" and worth the refinance.

6. Be sure to ask about any points you are being asked to pay. Points are percentage points on the principal of the loan. They are sometimes negotiable, so be sure to start a dialogue with your lender about them.

Follow these tips when considering whether to refinance your bad credit home loan.