You can still refinance your mortgage even if your credit history is poor.
Many people believe that it is impossible to refinance a mortgage if their credit rating is poor. The truth is, you still have a good chance of obtaining mortgage loans if you follow the right process.
Most lenders take into account your credit history, such as defaults and late payments, and this will usually effect their decision on interest rates. In some cases, if they perceive that the loan will come with too much risk, they may decline an application.
Get Back In Control Of Your Debt
The first step for anyone who is looking to refinance their mortgage is to get a copy of your credit score, so that you can see your own situation from the perspective of the lender. You are entitled to one free credit check per year. Review your file so that you know exactly how much debt you are in, how many credit cards you have, and how you can make improvements.
The next stage is to take control of your debt. This can be easier said than done, but any improvements to your finances at this stage will work in your favour when it comes to applying for refinancing.
If you are struggling with current repayments, renegotiate terms with your lenders and credit companies so that you can keep up. Pay more than the minimum if you can afford to, so that you can conquer the interest rates. If you need help, speak to a financial planning expert or credit repair assistance company.
Avoid Lender Mortgage Insurance
It helps to avoid Lender Mortgage Insurance (LMI) when applying for refinancing. If you borrow over 80% of the value of the property, your loan needs to be approved by both the lender and the mortgage insurer. This will drive up fees, and make your application less likely to succeed.
To avoid this, aim to have a 20% deposit available if possible, as well as stamp duty and legal fees. This is not crucial, but it will give you a much greater chance of success.
Speak With Lenders and Brokers
When you are ready to apply, speak to a professional mortgage broker. Be honest about your situation, and give them as much information as you can so that they can draw up a list of lenders who are likely to approve your circumstances.
If your mortgage refinancing can not be approved by a standard lender, you can talk with specialist lenders who might be able to help. They assess cases based on current circumstances rather than past mistakes, and may be able to approve your loan if your recent credit score suggests that you are able to afford repayments. They may give higher interest rates for the risk involved.
What To Avoid
There are certain pitfalls to avoid when refinancing your mortgage with a bad credit score. Look out for the following:
Feel free to shop around for the lenders that can give you the best interest rates, but make sure you don’t actually apply with anyone until you are happy with the rates and will be approved. Each application goes against you on your credit score. A mortgage broker can help by finding the right lenders.
There are entry and exit fees involved with refinancing your mortgage. It is worth reviewing your mortgage every now and then to make sure you are getting the best deal possible, but you shouldn’t refinance too often or the fees will stack up against you. Generally, a mortgage is worth refinancing if you can gain 1-2% better interest rates.
Another reason why people refinance their mortgage, is for consolidation of existing debt. In certain situations this is a valid route, but you should avoid refinancing too often for the sake of consolidation for the reasons mentioned above. Also, any consolidated loans should be repaid separately to your home loan. Otherwise, you will spend the next 20-30 years paying off credit card debt alongside it.
- Some companies offer attractive looking features on refinancing loans, such as lines of credit so that you can draw out home equity, and free redraws so you can pull back repayments. These temptations are rarely worth it, and will keep you in debt for longer.
Navigating the world of mortgage refinancing can be difficult, especially with a bad credit rating. Debt Negotiators can help you to take control of your debt, find the right lenders, and secure a refinancing loan with suitable interest rates.