Bad Credit Home Equity Loan Refinancing Possibilities

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Refinancing a home equity loan with bad credit provides a homeowner an avenue to lower total loan payments, repair a poor credit history and begin rebuilding equity. There are challenges to getting a bad credit home equity loan refinancing, but there are lenders who specialize in this type of loan and steps you can take to improve your odds of approval.

Find a Willing Lender
Regardless of economic conditions, there are lenders who specialize in home equity loan refinancing. Within this lending industry segment, there also are lenders who specialize in helping borrowers with bad credit with home equity loan refinancing. All lending is based on risk. The greater risk you pose as a borrower, the higher the interest rate you pay. Some lenders willingly pursue the higher risk borrowers to get the higher rate of return.

Find a Loan You Can Afford
Bad credit home equity loan refinancing will only make a bad situation worse if you cannot afford the refinancing that you get. Your credit score drops with negative activity on your credit history, such as late payments. Additionally, frequent borrowing, including refinancing, can reduce credit scores. So if you take out bad credit home loan refinancing, you are already affecting your credit score. Be certain you can live with the payment terms you receive, and remember, you will be paying a higher interest rate resulting in higher payments.

Using Your Equity
Even with bad credit, the equity in your home can help you qualify for home equity loan refinancing because the equity secures the loan. Equity is the difference between what you owe on your home and the current market value of your home. For example, if you owe $150,000 on your home and it is worth $200,000, you have $50,000 in equity. A home equity loan is borrowing you do against your equity so that if you took out a $20,000 loan against your equity, you would then have $30,000 in equity remaining.

Building Your Equity
A primary reason for home ownership is to build equity. If you fall behind on either mortgage or home equity payments you have ceased building your equity. Depending on your loan terms and the penalties contained, you might be further reducing your equity.

Even bad credit home equity refinancing, when you pay on time, can work to begin rebuilding equity in your home because you are paying down the total amount of debt against your home.

Reducing Other Debt
A primary benefit of home equity loans is that proceeds of the borrowing can be used for almost any purpose. With bad credit home equity loan refinancing, it is possible to increase your loan size if you have the equity to do so and pay off other higher interest debt. Even though bad credit home equity refinancing has a higher interest rate than traditional home equity borrowing, the rate will typically be lower than credit cards or other short-term loans.