Adjustable Rate Mortgages (ARMs)

As the name implies, the interest rate on an ARM can change. While they may be great for taking advantage of current low interest rates, you need to be sure that you will be able to pay your monthly payments if interest rates go up. The various types of ARMs today include negatively amortizing mortgages, graduated payment mortgages, buy down mortgages, and two step mortgages.

Fixed Rate Mortgages

If you want the safety of knowing that your payments aren’t going to increase, a fixed rate mortgage might be best for you. Or if your current ARM has already gone up, refinancing into the cheapest fixed rate mortgage may save you a substantial amount of money. Fixed rate mortgages usually are long term loans, with the most common term being 30 years.

Interest Only Mortgages

With interest only mortgages, you just pay the interest. The principal is not paid down, so the loan is never paid off. But this can make for lower monthly payments. Often these mortgages only go for a certain period of time and then you have to either pay off the loan, refinance, or convert to a conventional mortgage. Interest only mortgages are available in either adjustable or fixed rate loans.

When choosing the right mortgage and refinancing your home, be sure to do your research and compare all available options. Consider the monthly payments, whether the monthly payments will change, how long it will take to pay the mortgage off, and how much the total cost of the mortgage will be over the life of the loan.

Depending on how long you have been paying on your home, your monthly payment could go down considerably. That is because you have already paid off some of the principal amount that you owed on your loan. When you remortgage, the new loan will be for the balance that was owed on the home instead of the original amount. You are starting over with a new 30-year mortgage, so you are stretching the balance out over a longer period of time, so the payments go down.

If you can avoid accumulating additional debt after you remortgage, you can use the lower payment to help you pay off your other debts. Since your monthly payment is now less, you can use the difference between what your old mortgage payment and the new amount to pay off your other bills.

The best way to do that is to start with the bill that is smallest and pay extra on it each month until it is paid off. Then start on the next lowest bill and add the amount you were paying on the smallest bill to the next one. Every time you get a bill paid off, you do the same thing. Use the money you would have paid toward that bill on the next one on your list. Before long, you will have them all paid off and will have a lot more breathing room in your budget. Then you can start paying extra on your mortgage to get it paid off early and save on interest.

Another way to use a bad credit remortgage to pay off your debts is to do a cash out remortgage. Then use the money that you get back at closing to pay off your bills. This may be an option if you have enough equity in your home to cover your other debts.

The terms on a bad credit remortgage can be undesirable, but you may be able to use it to your advantage. If you can get out of debt and stay out as a result of remortgaging your home, you will be much better off in the long run.

When deciding whether you will save money by remortgaging your home, you need to take all of the fees into consideration. Ask your lender for a list of the fees that they charge for the loan as well as the things you must pay for in order to get financed, such as an appraisal or title insurance.

As a rule of thumb, it is usually beneficial to remortgage if you can get an interest rate two percentage points lower than your current mortgage. However, this can vary based on the fees involved in getting the new loans. If your new loan has higher than average fees, you may need a lower interest rate to make up for them.

You can use an online mortgage calculator to create an amortization table for both your current loan and the new loan to figure out which is the better deal. You’ll need to know how much you owe on your current loan and the interest rate you are paying on it. You can then figure out how much more interest you will pay over the life of the loan if you keep it. Compare that to the total amount of interest you will pay on the new loan, plus the costs and fees involved in getting the new loan.

Every situation is different, so the only way to know whether you will save money by getting a bad credit remortgage is by doing the math. If the new loan is a better deal, then go for it. You can save even more money by continuing to pay your current payment amount each month even though the new payment is lower. This will allow you to pay off the new mortgage early and save you thousands in interest.

When you remortgage your home, you are getting a new loan to replace the original mortgage. This new loan is often a 30-year mortgage, so you are going back to having thirty years left before you will own your home free and clear. If you cash out the equity in your home when you remortgage, you are basically buying your home all over again.

Remortgaging your home can help you get out of debt if you do it properly. However, most people who get a bad credit remortgage to pay off their debts start borrowing again soon afterward and dig themselves into another hole. By remortgaging, they give themselves room to borrow more money and end up with total monthly payments that are just as high as before. However, they are in a worse position now because not only are they up to their ears in debt, but now they have no equity left in their home.