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10 Reasons Why Refinancing Your Home Loan With Bad Credit Is A Good Idea

Checklist of Reasons Why Refinancing Your Home Loan With Bad Credit Is A Good Idea

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If you have a bad credit score, you may think refinancing your home loan is out of the question. However, this is not necessarily the case. Some lenders specialise in lending to borrowers with bad credit, and there are many benefits to refinancing your home loan, even if you have a poor credit history.

What are the benefits of refinancing your home loan with bad credit?

Refinancing your home loan means replacing your existing mortgage with a new one, usually with a different lender, interest rate, loan term or features. Refinancing your home loan with bad credit can help you achieve various financial goals, such as:

  1. Lowering your interest rate. If you have been paying off your home loan for a while, you may be eligible for a lower interest rate than what you currently pay. This move can help you save money on interest and reduce your monthly repayments.
  2. Accessing equity in your property. Equity is the difference between the value of your property and the amount you owe on your mortgage. Suppose you have built up some equity in your property. In that case, you can refinance your home loan and borrow more money for other purposes, such as home renovations, debt consolidation, investment or personal expenses.
  3. Consolidating other debts. If you have other high-interest debts, such as credit cards or personal loans, you can refinance your home loan and combine them into one loan with a lower interest rate. This decision can help you simplify your repayments and save money on interest and fees.
  4. Changing the features of your loan. You can refinance your home loan to access different features that suit your needs, such as an offset account, a redraw facility, and a fixed or variable rate.
  5. Extending or shortening your loan term. You can refinance your home loan to change the length of your loan term. Depending on your preference, this strategy can help you pay off your loan faster or lower your monthly repayments.
  6. Switching from an interest-only to a principal and interest loan. If you have an interest-only loan, you should refinance to a principal and interest loan to start paying off the principal amount of your loan. This decision can help you build equity in your property and reduce the total interest cost over the life of the loan.
  7. Switching from a principal and interest to an interest-only loan. If you have a principal and interest loan, you should refinance to an interest-only loan to lower your monthly repayments. This move can free up cash flow for other expenses or investments.
  8. Avoiding mortgage insurance. If you have less than 20% equity in your property, you may be paying mortgage insurance on top of your interest rate. This insurance is an extra cost that protects the lender if you default on your loan. If you refinance your home loan and increase your equity to 20%, you can avoid paying mortgage insurance and save money.
  9. Breaking out of a fixed rate. If you have a fixed-rate loan, you should refinance to a variable-rate loan to take advantage of lower interest rates or more flexible features. However, this may incur break fees from your existing lender, so you should weigh the costs and benefits before making this decision.
  10. Getting better customer service. Suppose you are unhappy with the service or support from your current lender. In that case, you should refinance your home loan to a different lender who offers better customer service and satisfaction.

Refinance your home loan with bad credit in 5 easy steps.

Refinancing your home loan with bad credit is not impossible, but it does require some extra steps and considerations. Here are some tips to help you with the process:

  1. Check your credit score and report. Before you apply for refinancing, knowing where you stand with your credit history is essential. You can get a free copy of your credit report from one of Australia’s three leading credit reporting agencies: Equifax, Experian or Million. Your credit report will show any harmful listings that may affect your credit score, such as late payments, defaults, bankruptcies or debt agreements. You can check your credit score for free from various online platforms, such as Finder or Credit Savvy. Your credit score is between 0 and 1,000 (or 1,200, depending on the agency), which reflects your creditworthiness. The higher your score, the better your chances of refinancing approval.
  2. Improve your credit situation. If you have a low credit score or a bad credit report, you should improve your credit situation before applying for refinancing. This effort may involve paying off any outstanding debts, making all your repayments on time, closing unused accounts and avoiding applying for new credit. You should also check your credit report for errors or discrepancies and dispute them if necessary.
  3. Compare bad credit lenders and loans. Not all lenders will accept borrowers with bad credit, so you must research and compare options that suit your situation. Some specialist lenders cater to borrowers with bad credit and may offer more flexible criteria and higher approval rates than mainstream lenders, but they may also charge higher interest rates and fees to compensate for the risk. It would be best to compare different aspects of the loans, such as the interest rate, fees, features, loan term and LVR (loan-to-value ratio).
  4. Apply for refinancing. Once you have found a suitable lender and loan option, you can apply for refinancing online or through a broker. You must provide personal and financial information, such as your income, expenses, assets and liabilities. You must also provide some documents to verify your identity and income, such as your driver’s licence, payslips or tax returns. The lender will assess your application and conduct a credit check and a property valuation. If approved, you will receive a loan contract outlining the refinancing terms and conditions. You should read this carefully and sign it if you agree.
  5. Settle the refinancing. After signing the loan contract, the lender will arrange the refinancing settlement with your existing lender. This move involves paying off your old mortgage and transferring the property title to the new lender. You will then repay your new mortgage according to the agreed schedule.

Overcoming Bad Credit Limitations

Refinancing your home loan with bad credit can be challenging but not impossible. Following these tips and options, you can find a refinancing solution that suits your needs and goals. However, before you apply for a new loan, make sure that you compare the costs and benefits of refinancing and that you can afford the new repayments. Refinancing with bad credit may help you save money on interest, access equity, or consolidate debt.

At Tiger Finance, we always guide you every step of the way with loan experts well-versed in the current situation in the world of financing. You can get a free consultation with our in-house financing expert without obligation to give you the most accurate picture of your loan situation today.

Contact Tiger Finance today so that we can help you begin your journey to secure the exact hassle-free loan product that you need.

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