A foreclosure refinance is a type of mortgage that is used to help a homeowner avoid foreclosure on his or her home. This type of refinance generally comes with high fees, high interest rates, and can be difficult to obtain. The purpose of this type of loan is to avoid foreclosure and allow enough time to get an individual's financial situation back under control.
Foreclosure is one of the biggest problems in the real estate market today. Many homeowners face foreclosure every day and are looking for a solution to the problem. The foreclosure refinance is one option that many of these individuals could choose to pursue. By using a foreclosure refinance, the homeowner could get a new loan and use the money that is borrowed to pay off the old lender. At that point, the homeowner will have a new mortgage loan to work with and can focus on making the new payment.
Even though a foreclosure refinance may seem desirable, it is not always attainable by those facing foreclosure. Many individuals who are near foreclosure do not have good credit histories. When a mortgage loan gets close to foreclosure, it is usually because the individual has missed several mortgage payments. When this happens, the mortgage lender will report the missed payments to the credit bureaus and it will negatively impact the homeowner's credit score. With a low credit score, it can be very difficult to find a lender to work with this type of loan.
If a homeowner does find a lender that would be willing to work with him or her, the homeowner will find that a foreclosure refinance can be expensive. Lenders look at a foreclosure refinance as a risky loan. The lender knows the homeowner got in financial trouble with the last mortgage. This means the individual is at an increased risk of getting in financial trouble again with future mortgages.
In order to be compensated for this excessive risk, the lender is going to raise the cost of the loan. The lender is going to charge more money for closing costs such as points on the mortgage. In addition to charging more money for closing costs, the lender is also going to charge a higher interest rate on the mortgage. This can result in larger payments for the borrower as well as paying more money over the life of the mortgage.