A bad credit mortgage refinance loan is not as dire a loan as it once was. (Unnamed Copywriting)

A bad credit mortgage refinance loan is not as dire a loan as it once was.

Homeowners with bad credit are likely holding onto mortgages with extremely high rates. A lot of these borrowers also carry a large amount of personal debts, like credit cards and personal loans. These debts likely have higher interest rates than the bad credit mortgage loans than they have. Most borrowers assume that doing a refinance on their home mortgage is a terrible option, because they will just end up in another high interest adjustable rate home loan.

But, this is not the case. The home mortgage lending world is a considerably different place than it was when these borrowers likely got the current mortgage. Mortgage rates for bad credit loans are lower than they have ever been before. And, more importantly, the rates available for bad credit borrowers are typically going to be thirty year or fifteen year fixed rate mortgage loans.

There are certainly limitations to bad credit loans now that were not there before. Borrowers are more limited to how much they can borrower, and the approval process is considerably more stringent than it once was. But, the loans are still there, and with the right amount of work, are available to almost anyone.

Where a borrower used to be able to borrow up to 125 percent of their home’s value, the limits have been lowered greatly. If someone is looking to consolidate credit cards, personal loans, or other consumer credit, they are going to be limited to 85 percent of the value of their home. This typically means that most borrowers are not going to be able to put every last bit of their consumer credit together on one loan. But, in a lot of cases, a borrower will still be able to pay off at least a couple of the debts with the highest interest rates.

For borrowers who cannot fit within that 85 percent window, there are still good financing options available for refinancing only the home mortgage. In these instances, a borrower will obviously not be able to consolidate any of their debt, but there is a good likelihood that they can lower their mortgage payment, and will be allowed to borrow all the way up to 97 percent of their home’s value.

The best thing about the current state of mortgage financing for borrowers with bad credit is that mortgages today are much different than the ones that likely contributed to the touch financial positions of these borrowers. Before, if you had bad credit and were looking into mortgage financing, it was very likely that the loan that would be offered to you not only had a high interest rate, but also was only a fixed rate for a short initial period. Today, bad credit mortgage refinance loans are typically being serviced by the FHA loan program.

The FHA loan program not only offers incredibly low interest rates, but most are also either thirty year fixed rates or 15 year fixed rates. When a borrower who doesn’t have the room to consolidate any of their consumer credit refinances on this program, they are likely able to get a thirty year fixed rate right around 5 percent. In most of these cases, the loans that they are refinancing out of not only have much higher interest rates, but are typically still moving upwards as well.