A remortgage or refinancing is the process that involves the payment of one mortgage using the proceeds that you will get from a new mortgage of the same property. In other words, you use the same property as security or collateral to get a remortgage. The process of remortgaging does not involve taking a second mortgage for the same house, but transferring the mortgage to another lender to secure favorable interest rates. Homeowners often choose to remortgage their properties for various reasons that include the following: to reduce mortgage repayments, raise capital, or consolidate short-term debts.
However, many people often wonder if they can remortgage their homes with bad credit. While it is possible, applying for a remortgage when you have bad credit is not that simple. It does not necessarily mean that having an existing mortgage on your house will guarantee easy access to a remortgage. Read on to get a better understanding of the remortgaging process with bad credit.
First and foremost, you must get your credit report from Equifax, Experian, or TransUnion to check your credit score. If you have a bad credit history, you should avoid making multiple searches for potential lenders. Instead, seek advice from an expert. The good thing about getting advice from an expert is that you will be protected since you can launch a complaint to the Financial Ombudsman Service if the mortgage turns out to be a bad deal. If you go about it alone, you may not be able to complain to FOS.
Find the Right Lender
If you have bad credit, but you want to remortgage your house, it is crucial to find lenders that offer remortgage products for individuals with poor credit. There are several poor credit options that you can consider if you want to remortgage your home. You should look for subprime lenders whose business is risk-based and deals with applicants with negative history on their credit reports. It is essential to avoid dealing with prime lenders such as banks if you want to remortgage your property with bad credit. The obvious reason why you should avoid them is that they will decline your application.
Prove That You Can Afford the Repayments Charged
When you have bad credit, the likely barrier that can impact your remortgaging process relates to affordability. You need to prove that you can repay your loan, and this will determine if the lender will approve your loan or not. There are different types of credit remortgage lenders, and you may be a perfect customer to another lender. Once approved, you can borrow at the rates presented and not on what the lender thinks you can afford to pay.
Apply for the Remortgage Loan
When you are satisfied with the offer made by the lender, you should go through the mortgage application process with your advisor. You should provide relevant documentation like pay slips, bank statements, proof of address, and identification. Your new lender will request a valuation of the property and title deeds. When the lender approves the application, your solicitor can arrange a completion date. On this new date, the solicitor will draw money from the new lender, and it can be used to clear the existing balance with the current lender and are paid the remainder of the money. Before you settle for a new remortgaging deal, you should know the fees that you will have to pay. The following are some of the fees that you should expect to pay:
- Legal fees- all mortgage deals require legal service
- Valuation fees- the lenders usually do free valuation, but you must be prepared to pay the fees
- Broker fees- it is a good idea to use a broker with extensive knowledge about the market
- Early repayment charges- these apply when you remortgage before the end of your current deal
If the fees are likely to reduce your potential savings, the whole process could be undermined. There are various reasons why homeowners choose to remortgage their homes. For instance, other people may choose this option to consolidate short-term debts, reduce monthly mortgage repayments, or raise capital. However, the process of remortgaging property may not be very easy if you have bad credit, though it is possible. There are different steps that you should take if you want your application to be approved. You should seek advice from experts, followed by choosing the right lender. It is vital to prove that you can afford the repayment of your loan once it is approved.