Are Bad Credit Refinance Rates Really High?

The average interest rate on both new and refinanced mortgages have fallen to about the lowest point ever. While these rates are extremely low on mortgages, those looking to refinance a bad credit mortgage will normally receive a much higher interest rate than a traditional mortgage. Bad credit refinance rates are high for a few different reasons.

Higher Risk

The primary reason why bad credit refinance rates are that high is because the borrower is a higher risk from the lender’s perspective. Your credit score is the best indication that a bank has as to whether you have a history of making your bill payments on time. If you have a bad credit score, then the banks will assume you have a greater chance of defaulting on the loan. To compensate for the additional risk they are taking on, a bank will charge higher rates.

Less Lenders in Market

A second reason why bad credit refinance rates are that high is because there are less lenders in the marketplace. Due to the higher rate of default, many lenders have stopped providing bad credit mortgages to borrowers. Because of this, there is a smaller supply of loans available to people with bad credit. Following simple economics of supply and demand, this forces up bad credit refinance rates.

Federal Intervention

Another reason why bad credit refinance rates are that high is because the government does not fully support these loans. While the government has invested billions to keep rates low, they still do not prefer banks to provide loans to people with bad credit. Because of this, bad credit refinance rates are higher in comparison to traditional mortgage products.

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3. Who Needs A Bad Credit Refinance Loan?
4. If I Have Bad Credit, Can I Get A Home Loan?
5. Are We Heading For A Second Mortgage Crisis?