If you are a homeowner with a poor credit rating, mortgage refinancing is an excellent way to rebuild your credit. Depending on the severity of your credit problems you may need to refinance the loan with a lender that specializes in bad credit mortgages; however, after as little as 24 months of on time payments you can qualify for competitive rates from a traditional mortgage lender. Here are several tips to help you rebuild your credit rating by refinancing your mortgage loan.

Bad Credit Mortgage Lenders

Bad credit mortgage lenders specialize in loans for homeowners with poor credit ratings. These mortgage lenders are often called “Sub Prime” mortgage lenders. When applying for a bad credit mortgage it is important to shop from a variety of lenders to ensure you will not pay excessive interest rates and fees. When you comparison shop from a variety of lenders it is easy to spot the ones trying to take advantage of you.

The Internet makes it very simple to compare loan offers from a variety of bad credit lenders. You can quickly compare offers from dozens of lenders and even apply for the loan online. When you compare loan offers it is important to compare all fees, points, and closing costs. Choosing the loan with the lowest interest rate does not mean you’ve picked the best mortgage.

Rebuilding Your Credit with Mortgage Refinancing

When you refinance your mortgage with poor credit you can expect to pay more than a homeowner with good credit. Once you have secured the new loan you will need to focus on building a favorable repayment history with the new loan. When you make regular, on time mortgage payments your credit score will improve. During the 24 months after you refinance your mortgage it is important to maintain low balances on your credit cards and use credit responsibly. If you have Internet banking it would be a good idea to schedule automatic payments to ensure all of your mortgage payments are paid on time.

After a period of 24 months of on time payments and responsible use of credit, you will qualify to refinance the mortgage with a traditional mortgage lender. Because you will be refinancing this loan again it is important that the bad credit lender does not include a prepayment penalty with the mortgage. If there is a penalty for early repayment, the penalty must expire before you are ready to refinance the mortgage. If you accept a mortgage with a prepayment penalty it could become very expensive to refinance with a traditional mortgage lender.

You can learn more about rebuilding your credit with mortgage refinancing by registering for a free mortgage guidebook.