How to Refinance Your Mortgage with Bad Credit and No Income

January 19, 2021

Talking more about your mortgage questions!

In this video, Chris Molder, a Toronto mortgage broker, sits down to talk about a question that is showing up more frequently: How do you refinance your mortgage with bad credit and no income?

Below, we talk a bit more about your weekly mortgage questions!

Don’t feel like watching? Find the full transcript below!

Worried about refinancing your mortgage if you don’t have great income or struggle with debts?

Depending on your household income and credit score you can pursue one of two options.

#1 Refinance existing mortgage. Some of the pros include:

  • resetting your amortization to 30 years giving you a low monthly payment
  • consolidate high-interest debts into your new mortgage
  • take advantage of historically low rates

#2 Home equity loan or 2nd mortgage. Pros include:

  • Ability to tap into equity built up in your home with easier qualification.
  • Income and credit history aren’t the main factors in approval
  • Use of funds are flexible including to pay the mortgage and debt arrears
  • Ability to pre-pay interest for a year so it’s good for cash flow

NOTE: Home equity loans and 2nd mortgages are expensive and aren’t a long term solution. They should be treated as a bridge to get you from point A to point B.

Can I refinance my mortgage with bad credit?

Chris: [00:00:00] Today, I want to talk to you about refinancing your mortgage in the last 12 months has been a challenge. Income may have been disrupted. The deferral options that your mortgage lender was offering earlier last year may have ended. So all of this is adding pressure on households to figure out how to survive the coming months. Especially in the face of the latest lockdown announced by the government of Ontario.

Chris: [00:00:26] If you have been fortunate enough to maintain income over the last couple of months and at least manage your debt loads through your credit score hasn’t been affected. The best option for you is to consider or refinance. There are lots of reasons why you might want to refinance your mortgage. Including the ability to reset your amortization over a longer time period. You can reset to 30 years, which gives you a low monthly payment. You can consolidate any accumulated debts into your new mortgage. And of course, with interest rates being at historic lows, there is a major incentive to pursue those lower rates and consolidate everything together.

You might face penalties to refinance early

On the flip side of this, you would likely have to break your existing mortgage, which involves an interest penalty and is some added expense. Now, if the last 12 months have really kicked you to the gutter and you’ve had challenges with your income and your credit has taken a hit, there is still the option of a home equity loan. The one thing that is going for you, most likely if you have a home in the GTA is that your house has increased in value. So you’ve created equity. And with that increase in equity comes an opportunity to take what’s called a home equity loan or a second mortgage.

Do you have equity in your home?

Home equity loans are really useful to tap into that equity for many different purposes. It’s very flexible. The decision to lend is not based on your income or credit necessarily, but on your equity position. And that money can be used to pay arrears on your existing first mortgage, consolidate debt, fix credit issues. And in fact, if there is enough equity in the home, you can borrow enough to prepay interest for a year, which at least gives you a lifeline to survive the next 12 months until after this pandemic has finished.

Chris: [00:02:21] However, one word of caution about home equity loans and second mortgages is that they’re expensive and so they’re not meant to be a long term solution.

Chris: [00:02:31] You should be really looking at it as a bridge solution to get you from point A to point B, weathering the storm, so to speak. And there should be a very clear exit strategy when you take on a home equity loan.

Helping you find answers for your mortgage matters!

I’m dedicated to improving my client’s financial literacy and solving hard money problems. Get in touch with confidence. Book a call directly via my calendar below, or you can get in touch with me here.


Christopher Molder

Mortgage Broker

Christopher is a mortgage broker based in Toronto, Canada. And a son of a broker too. He’s a second generation mortgage broker. Following in his father’s steps he joined the family mortgage business straight out of university.