Remortgaging to Fix Credit Problems

One of the great things about numbers and economics, even on the level of your personal economic situation, is that there doesn’t need to be any physical change in circumstances to create a change in value.

For example, if share investors get their knickers in a collective knot (nice image, hey?!), and start to panic about the state of the market, company values go down. No physical change, only an intangible one – but a very real financial effect.

In the same way, you can actually go a long way towards fixing an adverse credit rating (which might be stopping you getting a car, a home, or any other type of loan), simply by doing a little paperwork. There hasn’t been a physical change in circumstances for you – but now you are able to get a loan, where you couldn’t before. It’s like some sort of magic!

One usual way this works is that you would approach a lender other than your own (often through a mortgage broker), to buy your mortgage from your current bank. That is the ‘remortgaging’ part – you’ve just re-created your mortgage elsewhere.

If you have a bad credit rating, you may be able to have your new lender loan you the entire value of your home, including any repayments you have already made, using the property itself as security (just as you did at the start of the mortgage). This allows you to pay off whatever debts were being mean and nasty to your credit rating to begin with.

Remortgaging mat also allow you to reduce your monthly repayments, especially if you used to have a bad credit rating, but it has improved since you took out your home loan. Typically, lower credit scores for applicants translate to higher interest rates for your loan. If your credit situation has changed, remortgaging could save you hundreds or thousands of dollars in repayments per year.

Taking out a bad credit mortgage usually offers you a lower repayment schedule (as the loan is at a lower interest rate), however it is taken out over a greater period of time. They aren’t really giving you sumthin’ for nuthin’ … your total repayments over the life of the loan will likely be bigger, since the term is longer. However, you do have a more manageable solution in the meantime… and you can always change your loan again when your circumstances change.

It is advisable that you use a mortgage broker to find yourself a bad credit mortgage, or any sort of remortgage. They can quickly and easily figure out the net gain or loss to you, factoring in early repayment fees, break costs, and different interest rates.

Mortgage brokers can also help you find the lender most likely to take you on – every time you apply for finance and are rejected, this goes on your file. Nasty, isn’t it! Specialist advice can help you jump over that little pitfall.

Don’t think of bad credit mortgages as free money or a catch-all, though. You’ll still need to:
• Provide proof of income and outgoings
• Have enough equity to cover debts that you are consolidating
• Be able to afford the new monthly repayments