Remortgaging with Bad Credit
If you have a low credit score, remortgaging typically isn’t a good idea. Why? As a general rule of thumb, you can always expect to pay more on a home
mortgage loan if you have bad credit. Remortgaging with poor credit just locks in the high rates for 5, 15 or 30 years. But if circumstance forces you to choose between
refinancing or defaulting, then there are a few steps to take that may be able to soften the blow.
Avoid Fly-By-Night Lenders
Hoodwinking subprime borrowers and distressed mortgagees is one of the biggest rackets. You can’t swing a dead cat without finding a shady service on the Web offering relief from underwater mortgages and uncontrollable debt. But if the offer sounds too good to be true and you’ve never heard of the company offering it, avoid it at all costs. These services take advantage of your desperation and end up hurting your credit and costing you money in the long run, leaving you with little to no legal recourse in the end.
Instead, stick to local banks and credit unions which are established within your community, or a national lender with a good reputation. Chances are, they’ll give it to you straight - you may not like what you hear, but it’ll be the truth, and not a scam.
The Federal Housing Authority is providing relief for the many underwater mortgage holders in the U.S. by expanding its refinancing program. The Making Home Affordable program and the FHA are offering loans for
remortgages for homeowners who are making payments on a conventional or
subprime mortgage for home that is worth less than what they owe. To qualify, you must get your current lender to forgive 10 percent of your current loan. You must also have a credit score of at least 500. This program is valid for homeowners who closed loans on or after September 7th, 2010 and closed before December 31, 2012.
FHA loans are more affordable than private loans because they are guaranteed by the government. As such, there is less risk for the lender, thus
lower interest rates and payments for you.
Wait It Out
If you can afford it, or if you’re just on the threshold of that 500 credit score minimum set by the FHA, it’ll be worth it for you to wait it out a bit while your credit score improves. Spend the next year pulling your credit reports, fixing any errors (about 4 in 5 credit reports have inaccuracies), settling outstanding payments and negotiating with lenders. For every point you can increase on your credit score, you’ll save money in the long run when you remortgage. Do your best to improve your credit before
refinancing.
Consolidate Date
Depending on your situation, a remortgage could actually help you improve your credit score. If you have multiple outstanding debts, you can get them rolled into a single, lower interest rate loan when you remortgage. This will help you cut back on late fees and cost you less in interest over the years. Consider
debt consolidation as you shop for remortgages.
Conclusion
A low credit score immediately guarantees that you’ll pay more for your home loan or remortgage. But if the situation is critical or you want to take advantage of the low federal interest rates, there are better ways to pursue a remortgage with bad credit. Do your due diligence and investigate all of your options to save the most money in the long run.
