Bad Credit Remortgage

Contrary to popular belief, it is possible to receive a bad credit remortgage. Many people don't know it, but banks' primary concern in making loans to regular home owners is, in order:

1. Income
2. Initial deposit
3. Credit rating
   

Let's go through what it takes to receive a remortgage, and how the fact that you are applying for a remortgage rather than a standard mortgage affects your loan application.

The primary indicator of whether or not a person will honor the obligations of a loan over time is income. This has been backed up in study after study, and the logic is simple: a home owner needs a healthy, regular income in order to be able to re-pay a potentially high monthly payment. This is why, when projecting the default rates and loan provisioning for its books, a bank considers the unemployment rating of the country as the primary determinant of future loan repayment. Since you already have a mortgage and are looking for a remortgage, a huge factor in whether or not you will receive a new loan is the direction of your income. If you have recently lost your job, do not even bother applying for a remortgage. On the other hand, if you have received a raise or taken a better paying job, a remortgage may be a lot easier than you think to get, even if you have bad credit. This should be your primary concern.

Since we are discussing a bad credit remortgage loan rather than a standard mortgage, this is a tricky situation. Most home owners who need a remortgage are either falling behind on payments or are otherwise having trouble making ends meet. For these people, it is exceedingly difficult to save up money to put down a deposit for a loan, which is something that most banks require. For a bad credit remortgage, you may consider looking into home equity lines of credit, although many banks have scaled back on offering these types of loans in the recent past. A line of credit, though smaller than a whole mortgage, can often be enough to keep you going long enough to catch up on loan payments. However, this can be a dangerous game, as you will be taking on more debt in order to satisfy current obligations. This can be a good idea when, for example, your spouse is getting a new job or you come into an inheritance and plan to be making more money in the future: instead of paying your mortgage down, it may be worthwhile to consider a remortgage.

If you have bad credit, especially with an already existing home loan, it is notoriously difficult to receive a remortgage. Most people who are seeking a remortgage are looking to lower their payments, get better loan terms, or reduce monthly payments. However, if your credit rating has been taking some hits, banks will be unwilling or reluctant to deal with you. The best solution in this case is to work on improving your credit rating, since banks have been tightening up their lending standards by a great deal recently. There is no way around this, and you may have to consider getting a second job or even just continuing making your payments, hoping that your credit rating will go up in the future.

Remember that negotiating a remortgage for people with bad credit with a bank will always be an arduous process. Banks live and die off of the profit they are making on your mortgage, and if you have been falling behind on payments or otherwise hurting your credit rating, this will make the banks even more stubborn. Many banks will even ride a loan out until foreclosure because they are unable or unwilling to re-negotiate or remortgage their existing loans. Recently, after the housing bust and the scores of banks that have gone bankrupt, banks have been more willing to work with their debtors on this issue, but the system is always slow to change and is not always ideal for the smaller guy.

One thing you can do is take charge. If you are falling behind on payments or are making more income and would like to renegotiate or replace your existing mortgage for any reason and your current bank is not working with you, shop around. Some banks are willing to give bad credit remortgages as long as you have sufficient income or your financial health is improving. In this environment, with banks doing anything possible to survive, sometimes the trick is just finding a healthy bank to get a much better deal on a mortgage.

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