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Mortgage refinancing can be a great way for homeowners to save money on their monthly expenses, but for people with bad credit this option can feel out of their reach.

Fortunately, refinancing a mortgage in Canada is possible for almost all homeowners, even if you have bad credit.


What is Mortgage Refinancing?



Because most people aren’t well-versed in financial lingo, the term “refinancing” is often misunderstood. 

To refinance a home mortgage loan means to pay off the original loan in its entirety with a new loan, paying down the new loan over time. The refinancing process gives homeowners the chance to review and change most aspects of their mortgage situation and take on a new loan with more advantageous conditions.

Mortgage holders, even those with bad credit scores, can get a better interest rate, shorten their repayment terms, or change mortgage types altogether when they refinance, which is why it is such an attractive option if you’re looking for ways to make your monthly budgeting easier.


Advantages of Refinancing



For homeowners, getting a new mortgage with new terms and conditions presents an exciting opportunity. There are lots of ways to adjust your new mortgage to suit your financial reality and goals. 

If you decide to refinance your mortgage, you could:

  • Receive a lower interest rate
  • Adjust the term of your mortgage
  • Change mortgage types (from fixed-rate to variable, or vice versa)
  • Cash in on home equity to consolidate debts or make large purchases


Refinance Risks

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Although there are many advantages to refinancing your mortgage, it is not a one-size-fits-all approach to your household’s finances. There are several things to be taken into consideration before deciding that you should refinance your home mortgage loan.

If you refinance your mortgage, you may incur lender fees for changing your arrangement. In many cases, the savings offered over time by lower interest rates make it worthwhile, but this does not apply to all situations. 

Also, you risk taking out a refinance loan that is bigger than it needs to be to handle the related costs, which could end up costing you more in the long run. For these reasons, and to get a complete understanding of the process, you should discuss every aspect of your plans with a specialist for whom mortgage refinancing is second nature.


How to Refinance a Mortgage With Bad Credit

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A weak credit score can make it more difficult to refinance your mortgage, but that doesn’t mean that it is out of reach. Credit requirements will vary significantly, depending on the type of mortgage you already have and your lender. 

The most frequently quoted credit score requirement is a score of at least 720, but this rule is not set in stone. In fact, we’ve seen credit scores as low as 300 get a mortgage refinancing pushed through!

These days, many people are burdened by bad credit scores, despite their best efforts to keep their finances in line. Bad credit often results from factors that are outside of our control, but that doesn’t mean it has to stay that way. If, in the past, life threw something your way that led to bruised credit, you still have options available because bad credit is not a permanent condition.

Credit scores aside, lenders will also look at other aspects of your financial situation when you want to refinance a mortgage. They typically require at least 20% home equity on your property, as well as a debt-to-income ratio that meets their standards. Ideally, your debt obligations should be less than a third of your monthly earnings, but some lenders will accept a higher proportion.


Talk to your Lender

Because of the pre-existing relationship you have with your lenders, they will often be willing to help you find solutions to the problems posed by bad credit. Contact them and explain your situation to see what kind of options are available to you. Your lenders will want to retain your business, so they might be open to taking factors other than your credit score into account.


Consult a Mortgage Broker

Mortgage brokers are trained professionals that help connect people with the right lender for their situation. When you deal with a bank, they can only offer you their mortgage products. But when you go with a mortgage broker, they can look at all the options on the market to get you the best deal.

Because they are industry specialists, a mortgage broker can help you navigate the complicated language and terminology involved with mortgage refinance options. Especially when trying to refinance your mortgage with bad credit, the guidance of an experienced mortgage broker is invaluable.


Build Your Credit Score

For most people with bad credit, the best approach is to look into ways to boost your credit rating before you refinance. As with negotiating the terms of other financial instruments, the better your credit score, the easier the process will be. A high credit score will improve your chances of approval and increase your chances of getting more favorable terms.

If you’ve ever asked yourself “How do I rebuild my credit score?”, you’re in good hands. We’ve written a blog about it!

You Can Refinance Your Home Mortgage Loan



Mortgage refinance can be a great idea for many households, even those with bad credit. If interest rates dropped since you took out your home mortgage loan, a refinance loan could come with a lower interest rate, which will lead to great savings in the long run. Also, refinancing gives you the opportunity to do things like change your mortgage type or adjust the term of your loan. But these options can be difficult to access for people with bad credit.

Thankfully, there are solutions to the refinance conundrum if you have a bad credit history. Talking to your lender and working on rebuilding your credit are great starting points, but they don’t work out in all cases.

Consulting an expert is the simplest and easiest way to go about refinancing your home mortgage loan. An experienced professional will be able to evaluate your situation, find out which options make sense and match you with the best lender.