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We often get asked: “Can I refinance a mortgage if I have bad credit?”

 
Yes, it is possible to refinance a mortgage with bad credit, but it can be more challenging and may result in less favorable terms. Lenders typically consider borrowers with low credit scores as higher-risk, which can lead to higher interest rates or stricter loan requirements. Here are some steps to consider if you’re looking to refinance your mortgage with bad credit:

  1. Review your credit report: Obtain a copy of your credit report and review it for errors or inaccuracies. If you find any, dispute them with the credit reporting agencies to help improve your credit score.

  2. Improve your credit score: Before applying for refinancing, take steps to improve your credit score. Make timely payments on your existing debts, pay down outstanding balances, and avoid taking on new debt.

  3. Research government-backed refinance programs: In some cases, government-backed programs, such as those offered by the Canada Mortgage and Housing Corporation (CMHC), may have more lenient credit requirements. These programs can be helpful for borrowers with lower credit scores.

  4. Shop around for lenders: Some lenders may be more willing to work with borrowers with bad credit than others. Research different lenders, including banks, credit unions, and mortgage brokers, to find the best refinancing options for your situation.

  5. Consider a co-signer: If you have a family member or friend with a strong credit score, they may be willing to co-sign your refinanced mortgage. This can help you secure better terms, as the lender will consider the co-signer’s credit score in addition to yours.

  6. Prepare for higher interest rates: Be prepared for the possibility of receiving a higher interest rate if you refinance with bad credit. Consider whether the benefits of refinancing, such as lower monthly payments or access to home equity, outweigh the potential increase in interest costs.

  7. Build a strong application: Strengthen your refinancing application by demonstrating a stable employment history, sufficient income, and a low debt-to-income ratio. These factors can help counterbalance the impact of a low credit score.

  8. Consult with a mortgage broker or financial advisor: A professional can help you navigate the refinancing process and provide personalized advice based on your specific financial situation.

Keep in mind that refinancing with bad credit may not always be the best option, especially if the interest rates and terms offered do not significantly improve your current mortgage.

Consider whether other debt management strategies, such as debt consolidation or credit counseling, may be more beneficial in addressing your financial challenges.