Did you know that Canadian households are carrying around $2.5 trillion in outstanding debt? 2/3 of this debt comes from mortgages while only 1/3 was for every other debt type.
If you’re a Canadian homeowner with outstanding mortgage debt, these statistics may not come as a surprise to you. One way to balance out your debt is by refinancing your home.
Even those with bad credit can opt for a mortgage refinance. Read on to learn how.
How Does a Mortgage Refinance Work?
Before getting into how to refinance a mortgage with bad credit, it is important to understand how the refinancing process works.
A mortgage refinance is a form of a loan that replaces the mortgage loan you already have with fresh terms. For example, you could receive a new interest rate or a new total loan balance.
Refinancing is a way to repay your old loan in full and then make payments for the new loan terms. Some choose the refinancing option to increase their monthly cash flow, remove mortgage insurance, or change their loan terms.
Qualifying for traditional refinance options with low income and bad credit is not likely. However, there are methods to help you consolidate debt through a bad credit refinance.
You have to apply for refinancing just as you did with your original home loan. Once you find a lender to work with, ensure you meet the qualifications before applying.
Options for Refinancing a Mortgage With Bad Credit
The traditional method of qualifying for refinancing involves having a good credit score. However, there are ways to refinance your mortgage with a credit score that isn’t exactly ideal.
If someone who lives outside of your home is willing to take financial responsibility for your loan, you can apply for a refinance with them. The non-occupying co-client is someone who knows the risks if you default on your loan.
For this specific method, a lender will consider both credit scores, assets, and income. There is a chance that the co-client will have to be on the title of your home depending on the type of loan you have.
To get a good loan to value ratio, you’ll still need a credit score that qualifies. A lender will take the lowest median credit score between the two parties to make a decision.
If this option seems like it could work for you, make sure you and the co-client understand what is at stake before agreeing to anything. If you fail to pay back the money on your loan, the lender can go after the co-client for the money.
You’ll have to manage your payments accordingly and try to maintain a great relationship with the co-client for this method to be beneficial. If you are looking to refinance your loan for home renovations, this is not the best option.
If you only need to refinance your loan term or rate, you can do so with no credit check. If you are looking at cash-out remortgaging options, you’ll need at least a 620 credit score.
Although 620 is not the best credit score, it is also not the lowest. With the money you receive from this method, you can pay down other debt you might have to improve your credit score overall.
There aren’t a lot of banks that will refinance with bad credit which is why B lenders exist. When it comes to A lenders vs. B lenders, A lenders are federally regulated banks and credit unions that lend to the best borrowers.
B lenders are private lenders meaning they are not federally regulated. If you are denied by traditional lenders for a refinance, you can find more flexibility with B lenders.
The major pros of B lenders include that they provide more leniency when compared to traditional lenders on the following:
- Debt serving ratios
- Bad credit scores
- Non-conforming sources of income
- Down payment sources
Those looking to refinance their loan don’t have to worry about a down payment. The down payment only applies to those buying a home who need their first mortgage loan.
Are You Trying to Refinance Your Mortgage With Bad Credit?
Not everyone has good credit but that doesn’t mean they shouldn’t be able to refinance their mortgage when they want. The above mortgage refinancing options work for those who have less than perfect credit.
If you’re ready to change the terms or rates of your Ontario home loan, the methods in this guide can help.
Finding lenders for bad credit refinancing doesn’t have to be difficult. Contact us to learn about our options for refinancing now.