Why Refinancing After Your Bankruptcy Posting Falls Off Credit Might Be A Good Idea
You can purchase a house after filing for Chapter 7 bankruptcy if you wait a certain length of time; however, the rate you incur on your loan is based on your current credit rating. With a Chapter 7 on your report, your credit score would likely be lower than it could be, but this can all change when your bankruptcy posting eventually falls off your credit report. When this happens, refinancing your loan is often a good idea.
How long this takes
Before you rush to a mortgage lender to begin working on refinancing your loan, you should first know how long you must wait. The rule of thumb with Chapter 7 bankruptcy is that the posting will fall off 10 years after the filing date. If you file in May of 2010, for example, the posting should fall off in May of 2020. If you purchased your home sometime after May of 2010, your bankruptcy posting would have appeared on your credit report at the time you got the loan, and this would have affected your interest rate and loan.
The effects of a bankruptcy posting falling off your credit
When your bankruptcy posting falls off your report, there is a high probability that your credit score will instantly soar. The exact amount of the increase in score varies, but many people experience a 60-point increase. This huge increase in score can instantly change your credit rating from one category to another. If your score is currently considered a "good" score, this bump in score might place you in the "excellent" category.
Why this is a good reason to refinance
Interest rates on mortgage loans are closely tied to creditworthiness. This means that if you got the loan after filing for bankruptcy, the loan and the rate were based on the lower score you had. Additionally, after filing for bankruptcy, many people take the time to begin rebuilding efforts for their scores, and this is something that also leads to score increases. When you view all these effects and end up with a much higher score, you will have more opportunities for loan types, and you will end up receiving a much better interest rate on your loan. With a lower rate, you will save money.
If your bankruptcy is about to fall off your credit report, you should consider refinancing as your loan, as this could be a great way to reduce your monthly mortgage payment.