Subprime mortgages may seem like a good idea at first glance, but a couple of months – or years, depending on your loan term – later and you may have realized just a bit too late that you’re not ready to meet their requirements. Thankfully, there’s one quick way of getting out of this predicament and that’s by refinancing with a second and better mortgage.
What Are Subprime Mortgages?
Subprime mortgages are offered to people with bad credit. They’re usually the last resort for borrowers since they come with high interest rates and loan application costs. Not only that, but you’ll also be subjected to balloon payments and prepayment penalties. Of course, subprime mortgages aren’t completely bad. Since they don’t take exception to low credit scores, they could be your only means available for your financial needs.
Pay Off Your Subprime Morttgage with a Refinance Loan
Here are five quick steps to help you pay off your subprime mortgage with a refinance loan.
Step 1 Know the right time to refinance with a second mortgage.
Timing is critical and especially when your existing mortgage comes with an adjustable interest rate. The best time to refinance with a second mortgage is right before your interest rate adjusts to a higher one, before your pre-payment penalty is called in, and certainly before your loan expires and you’ll be required to make a balloon payment.
If you don’t know the answers to these questions, you can always contact your creditor and ask. Don’t worry; they won’t take exception to it. They’ll probably think you’re just modifying your budget to cover your monthly dues.
Step 2 Assess your credit rating.
Have you done anything to improve your credit rating since the last time you’ve checked? If you haven’t yet, there are many things you can work on immediately to repair your credit. Firstly, you can close revolving credit accounts that only put you in greater financial debt. Paying on time can also help.
Be warned: if you take this step lightly, you might not be eligible for the best mortgage refinance rates. If you believe DIY credit repair tips aren’t enough, you can always ask help from a professional.
Remember as well that you’re entitled to one free credit report from each of the three major credit bureaus, namely Equifax, Experian, and TransUnion, every year. Take advantage of that!
Step 3 Establish a steady source of income.
Creditors always love people with steady sources of income; it’s music to their ears because it ensures that their borrowers will always have enough money to at least cover their interest payments.
If you want to qualify for a second mortgage and eliminate your existing loan, you need to submit proof that you have a stable and steady source of income. If you are only receiving cash income, make sure to provide documentation certifying the constancy of your cash receipts.
Step 4 Assess your home’s equity.
How much of it is left? How much of it remains untouched? If you’ve used at least ninety percent of your home’s equity, you might not be eligible at the moment for the best mortgage refinance rates. You need to work on reducing the size of your existing mortgage before applying for a second mortgage.
Step 5 Shop, Compare, and Apply
If all’s well and ready then the only thing left to do is shop for rates, make comparisons, and submit your application!