One of the biggest mistakes that people make when they refinance mortgage with bad credit is that they start from the bottom up when it comes to choosing a lending company to subscribe to. Apparently, many people believe that the words "bad credit" is synonymous only to sub-prime lenders, or worse: bad credit lending companies that offer the quickest cash flow but with the highest interest rates possible. This does not have to be the case at all. First, in order to understand why this does not have to be the end-all solution to your financial scrimping, we need to look into the workings of mortgages, refinancing options and bad credit.

As you may know, mortgages are loans being taken out using the person's property as collateral (also called lien or security.) The amount of the actual loan corresponds with the current real estate market value of the property involved. This means that a small bungalow or apartment can be offered as collateral the same way as that of a 3-bedroom house or an apartment building. Refinancing or second mortgage is taking out a secondary loan using the same collateral. Ideally, a refinancing option should offer a larger amount of loan money in order to pay back the first loan and still have money to spare, while offering lower interest rates to make re-payment a little easier to bear.

Lastly, bad credit is a category that people are placed under when their credit score is somewhat on the lower end of the financial spectrum. There are actually many categories by lenders use to ascertain who are on bad credit ranking and who are not. This may include outstanding debts, poor or no credit standing, issues of bankruptcy, stock portfolio (or lack of,) life insurance coverage (or lack of,) etc. Many people with bad credit rating are usually considered as a high-risk group or a group of people who does not have the full potential to pay off their debts. Therefore, lenders tend to increase the bad credit group's interest rates with all their loan policies in order to recoup potential losses.

Now if you add up refinancing plus bad credit, you actually have a larger loan than your original mortgage policy but with a larger interest rate than conventional refinancing policies. It is fairly easy now to see that deciding to take out a refinancing mortgage with bad credit is not something you should do on a whim. If you are in such a financial fix, never make a beeline to sub-prime lending companies. True: many of these companies offer quick approvals and even quicker cash, but many have loan policies that are almost impossible to pay back. This is as good as handing them your property in exchange for a few bucks now.

Get a copy of your most recent credit rating and shop around for prime lenders. Prime lenders still offer the most affordable interest rates when it comes to refinancing options. Many have policies that cater to people with low credit rating. The "low" rating varies per company. What may be "bad credit" for one lender may still be considered as "low credit" (but still good) for another. Shop around. You have everything to gain afterwards.