Remortgaging With Bad Credit – Is It Possible?
It used to be fairly rare to have poor credit to begin with. Also, if you had bad credit finding a mortgage was nearly impossible. However, with the economy the way it has been for awhile, poor credit and second chance credit agencies have cropped up everywhere. Not only is it no longer uncommon to have bad credit it is becoming more and more prevalent. It has also become increasingly easy to get a mortgage. For those who are already in a mortgage and need to remortgage with bad credit, this too is possible and easier now than ever. So, while the bad news is that more people need to remortgage with bad credit the good news is that remortgaging with bad credit is no longer impossible.
Why would you want to remortgage when you have bad credit?
One of the questions often asked regarding bad credit remortgaging is why do it? You already have a mortgage so why take your business elsewhere? There are several reasons you may want to consider remortgaging with bad credit and they all pertain to making sure you fix those credit issues and do not get further into debt. If you know that you are going to get behind on your current mortgage, remortgaging can give you a completely fresh start and help save your credit rating before it gets to be too poor. For example, if you know you are struggling to make your mortgage and may have been late on a few payments already, this will affect your credit score. However, if you pay that loan off it looks a lot better on your credit. Then you have a brand new loan on your credit, one that has no history of late payments.
When you remortgage with bad credit you also may have the opportunity to lower your payments. While the payments may be lower your interest rates may be higher. This is to account for the risk of extending a loan to someone with poor credit. But, it may allow you the flexibility to divert your existing funds to other debt and pay off other loans while not putting your home in jeopardy. The remortgaging gives you the ability to help get out of the financial bind you are in so you can start rebuilding your credit.
Is remortgaging with bad credit possible?
For some, the prospect of remortgaging with bad credit is daunting and some do not even try because they believe their bad credit history will prevent them from remortgaging. With a traditional loan this is true. You will likely be declined if you go to a bank and try to get a traditional remortgage loan. However, there are financial institutions and banks that specialize in higher risk loans, especially for those who have poor credit. A poor credit score does not mean you cannot remortgage. It simply means you will have to go to a specialized company to handle it. Keep in mind that you will have to go through an approval process and you will likely have to make some sacrifices. But if you consider the long term gains, remortgaging may make sense.
The internet is a great source of information on remortgaging and you can often apply online to compare offers. Make sure you shop around to get the best deal when you are considering remortgaging with bad credit.
What to expect when remortgaging with bad credit.
There are several ways you can remortgage with bad credit but usually the reason people do it is to reduce their monthly payment. This means that you will likely extend your loan pay off. Opening a new loan for a smaller amount for a longer period of time will automatically ensure your monthly payments are reduced. However, there is a caveat that you should be aware of when you do this. Although your monthly payment will go down, your interest rate will likely go up. You may be surprised at how much your interest rate may increase. In the short term this may be acceptable, though, to make sure your long term financial goals are met.
When your interest rate increases more of your payment will go to that before touching the principal balance of the home. This means that you will accumulate less equity in the home over the course of time. But, if you need a lower payment to deal with other pressing financial issues, this may be a great solution. You just need to go into remortgaging with bad credit expecting that you will see a hefty increase in your interest rate.
Using remortgaging with bad credit as a temporary solution.
Assuming that you are using remortgaging with bad credit as a means to reduce your monthly expenditures, you can use it to your advantage. Once you are able to pay off old debts and start to rebuild your credit, you can actually remortgage once again. As your income to debt ratio increases and as your credit score climbs, you will become eligible for a wider selection of remortgaging options. While you were paying off a smaller amount, less was going to the principal balance due to the higher interest rate. When you have a better credit score, you may be eligible for a better interest rate. This may reduce your payment even more, especially after you have paid on the old remortgage for awhile.
But not only might it reduce your monthly payment yet again, because of the decrease in interest rate, more of what you pay will go to the principal balance. This means that as you make payments you will whittle away at your principal balance, paying off your home faster. While remortgaging with bad credit may be a last ditch effort to make an untenable financial situation better it can be a great temporary solution. Keep in mind that as you repair your credit you will become eligible for better terms in remortgaging from many more lenders. You can use the temporary higher interest rate to put yourself into a more favourable overall financial position. In the long run, once you remortgage again you will be in a much better place.