By capping monthly payments to no higher than 38% of the owners monthly income as well as offering lenders incentives that could bring this down to 31%, property values and interest rates as well as homeowners spending power will hopefully equalize over the course of the 5 years, which is how long this loan will last. No refinancing will result in an interest rate lower than 2% though.

This is a bold move which hopes to bring us out of a long winded recession that has been creeping up on us through out the Bush administration. There are some cities such as Boston and Seattle where the price of a house is too high for many average working people to afford. I personally know of many who have left there home towns for precisely this reason. These people did not want to move away but the amount and quality of housing for the same price in other states far outweighed their desire to sweat it out in their home towns.

To be eligible for a bad credit mortgage refinance under this stimulus plan the homeowner must:

• Have at least 20% equity in their home
• Be in default or at risk of becoming default
• Be the occupant of the house
• Prove that they have enough income to pay off the loan

Those who are not eligible:

• Investors who bought house as an investment
• Owners of a house that has dropped in value more that 5%
• Those who have a Jumbo mortgage
• Those who lied about their income on the application

One other requirement is that if your total debt is over 55% or your income you will be eligible but you will have to go to debt counseling.

Once qualified, any borrower who is prompt with their payments will also receive a $1000 bonus every year for the 5 year life of this loan.

No matter how you look at it, this is a great deal for anyone with a bad credit mortgage. Obama’s plan may or may not have a nation wide effect of  improving our economy however, in comparison to any other type of bad credit mortgage refinance loan, this one is a winner.

The Cash In Hand Option

Depending on the market conditions, if a bad credit mortgage refinance is done at the right time, that is, if the going interest rate is lower than when they got the subprime mortgage loan, they could end up closing the deal with cash in hand. Bad credit is usually caused by late payments, missed payments, excessive inquiries into their credit report, or just plain over extended finances. By refinancing into a lower interest rate and coming out with cash in hand they could use the extra money to clean up their past debts and as a result improve their credit score.

The Decreased Monthly Payments Option

Bad credit mortgages are usually associated with higher interest rates. Even if a home owners credit is still bad, refinancing could result in a 1 or 2 point lower interest rate which would decrease the monthly payment. Even a slight savings like this could be enough to get ahead on some of the debts that are keeping their credit score down.

Switching to a Fixed Rate Mortgage

Many bad credit mortgages have what is called an adjustable rate, which means they fluctuate along with the economy. If the mortgage refinance is done when interest rates are low the home owner could go for a fixed rate and get locked in to a better deal for the life of the loan. A fixed rate mortgage will not fluctuate, it is fixed. It does take some skill to do this right so it would be a good idea to follow the flow of the economy for a while to try to get a grip on any apparent patterns of highs and lows before taking this route.

If you got your house with a bad credit mortgage loan be aware that you do not have to live with the higher interest forever. Even if your credit still has much to be desired a bad credit mortgage refinance is always an option.