Sub-Prime Credit: Getting the Best Deal When You Refinance

By Karen Lawson
CMR Columnist

When refinancing, if you have bad credit, you may be required to pay additional fees or higher interest rates to compensate for the lender's risk in giving you another chance. While new mortgage loan products make it easier than ever for people with bad credit to refinance their home loans, it's still a good idea to do your homework to ensure that your mortgage refinance complies with fair lending and credit practices.

Beware of Fees, Charges, and Mortgage Refinance Terms

Many reputable lenders utilize automated underwriting programs that have standardized the mortgage products offered to borrowers with bad (also called sub-prime or non-conforming) credit. This reduces the likelihood of unfair or predatory lending practices, which can cost much more money than the face amount of your refinance, interest, and reasonable charges associated with originating your loan.

Here are some areas to pay close attention to when shopping for a mortgage refinance to avoid unfair lending practices that can cost you big:
  • Know your budget, and stick to it. Additional charges can add to your monthly payment amount.
  • Ask your lender for a schedule of all fees and costs, and how they will be paid. For example, whether they're paid at closing or added to your refinance loan amount.
  • Ask questions. If your lender cannot explain all charges to your satisfaction, keep shopping for your mortgage refinance loan!

Avoid Surprises: Know the Terms of Your Refinance Loan

Unfair or "predatory" lending practices are the exception to the rule, but your best protection is knowledge. Adjustable interest rates, fees and costs that are "added on" to your loan amount, and excessively high interest rates can cost you thousands of extra dollars. It is very important to understand the basic terms of your refinance transaction and how each affects your bottom line.

Source
Federal Trade Commission

About the Author
Karen Lawson is a freelance writer with more than fifteen years of experience in mortgage banking. She earned an MA degree in English from the University of Nevada, Reno.

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