Refinancing your mortgage when interest rates are low can help you save money and put yourself on better financial footing. However, are you going to be able to refinance your mortgage if you have recently filed for Chapter 13 bankruptcy?
How Long Ago Was the Bankruptcy?
According to the FHA, filing for bankruptcy doesn’t necessarily mean that you cannot get a new mortgage. However, you must have filed for bankruptcy at least 12 months prior to any attempt to refinance your mortgage. In addition, you must show that your current debt obligations have been paid in a timely manner since you have filed for bankruptcy. For those who are seeking a conventional loan, it could take as many as four years until someone who has filed for Chapter 13 bankruptcy would be eligible to refinance their home loan.
Will You Get a Lower Interest Rate?
Having the ability to refinance your mortgage doesn’t necessarily mean that you are going to be eligible for a lower rate. When you file for Chapter 13 bankruptcy, the filing stays on your credit report for seven years. This means that lenders will be able to see that you have had trouble managing your money in the past. Therefore, they will want you to pay a higher interest rate to compensate them for the extra risk that they are taking.
What Are Your Other Options?
One option to lower your mortgage payments is to extend the life of your loan. Since you are making a larger number of installment payments, you will pay less per installment. However, the drawback is that you will pay more interest over the life of the loan. Therefore, you must ask yourself if a lower monthly payment takes precedence over paying less overall for the loan. Another option that you may wish to consider is the Home Affordable Refinancing Program, which may allow you to refinance your mortgage before your bankruptcy case has been resolved.
If you are thinking of ways to lower your mortgage payment, refinancing can be the best way to do it. For those who are in the midst of or have recently gone through a Chapter 13 bankruptcy, it is important that they understand the challenges that they face to ensure that they are able to better manage their finances.