Sareo Blog

As the financial markets heave, millions of American are finding it increasingly difficult to keep up with their bills. Furloughs, lay offs, and salary reductions are weighing in. In addition, home values have plummeted yet at the same time mortgage payments and taxes are on the rise for some.

These days, we might assume that the homeowner who declares personal bankruptcy is doing so because their home went into foreclosure. But, not every person who owns a home is behind on their house payments. Instead, auto loans, personal loans, credit cards and other non-housing debt may have overwhelmed their finances, making it difficult for them to stay solvent.

For the person who still owns their home, who isn’t behind on payments, but is essentially bankrupt, one question remains: can they still refinance their home post bankruptcy?

That question isn’t easy to answer, particularly in light of the recent push by the Obama administration to ensure that struggling homeowners receive a modified mortgage, one with a lower interest rate and resultant lower monthly payment. If you qualify for this type of court ordered assistance, than that answer is yes.

For everyone else, there are a number of factors to consider before seeking home refinancing:

Keep up with your debt obligations. Some of your debt may have been discharged in bankruptcy court, but you also have monthly utility bills to pay, auto insurance, homeowners insurance, mortgage payments and other expenses. Pay these on time and you’ll demonstrate a proven track record.

Apply for new credit. Credit has tightened considerably over the past year, therefore your chances of obtaining new credit with a recent bankruptcy on your credit record are slim. However, if you are approved make sure that you carefully use your new credit card and pay it off monthly. Again, you’ll be proving to creditors that you can responsibly manage your personal debt.

Save your money. Many Americans are saving their money these days, the best savings rate in more than a quarter of a century. This is a good practice because having an emergency fund in place can ensure that you’ll be able to handle life’s emergencies as they come without falling back into debt.

Approximately one year after having your personal bankruptcy completed, go ahead and start obtaining mortgage quotes. You’ll know right away if you’ve been approved and your loan terms. If your rate is high, then the effects of your personal bankruptcy are still weighing in, therefore you may want to wait for at least six months before applying again.

In the meantime, obtain copies of your credit reports and your credit score and settle any open issues with creditors that you may have. Remember, the higher your credit score the more likely you’ll be approved for home loan refinancing. Personal bankruptcy may have set you back for awhile, but it need not hold your down for the long term.

Refinancing your mortgage means taking out a new mortgage in order to repay the old one. There are certain circumstances when this can prove beneficial, reducing the amount you need to pay, or freeing up any equity in your property. Care should be taken, however, because refinancing a mortgage can mean an increase in the total amount you owe.

Releasing Equity In Your Property

Refinancing the mortgage on your home can help to release some of the equity in your property. Because mortgages attract such low interest rates when compared to other forms of finance, a refinance mortgage represents an attractive method of freeing cash for any purpose. When used in this way a mortgage refinance can increase the total capital and the total amount you need to repay.

Lowering Repayments By Refinancing

If interest rates have improved since you began payments it could prove fruitful to refinance. Lower interest rates mean more attractive mortgage offers, lower monthly repayments, and a lower total interest repayment. Always look at your existing mortgage policy to determine whether refinancing your mortgage will attract any administrative charges. Balance this against the potential money you could save in repayments to determine whether refinancing is a viable and beneficial option.

The Bottom Line On Refinancing

There are many different types of mortgage available, as well as various options available from each mortgage supplier. The range of choices and prolonged increases in house prices have helped to make mortgage refinancing a real option for homeowners. Regardless of the reasons for refinancing, it is important to weigh up the positives and negatives and ensure that you get the best deal available to you.