Can I Remortgage with Bad Credit?

Individuals looking to remortgage with bad credit may have to struggle to find a lender who’d be willing to lend. If you’re someone intending to do so, you’ll find it difficult to negotiate even with your existing lender.

To qualify for a HELOC (home equity lines on credit) or a remortgage with bad credit, you’ll need to have a debt-to-income ratio in the lesser 40s or lower.

Additionally, the equity or value of your property should be 15% – 20% more than what you owe, and your credit score should be at least 620. You may be wondering, “Can I remortgage with bad credit?” if you’ve defaulted on credit card reimbursements or had an adverse CCJ (county court judgment) ruling.

You may also find yourself asking this question if you’ve completed an IVA (individual voluntary arrangement) or have been discharged insolvent.

Yes, you could face an uphill struggle remortgaging with bad credit, but do not automatically assume that your application to remortgage will always be rejected.

You might want to remortgage for home renovations, pay for your children’s education, and other purposes. It might sound incredible, but you’ll find a few lenders who’ll consider your application.        

Remortgage with bad credit

Having a poor credit score is your biggest hurdle when it comes to applying for a remortgage with bad credit. Maybe you did not face any problems obtaining your first mortgage but struggled in paying back your debts as your financial stability suffered a setback.

The fact that you defaulted on your monthly payments and took longer than usual in reimbursing your debt has adversely affected your credit score.

The credit score

You’ll sooner or later discover that your first loan will not help you to secure a remortgage if your credit score is below 620.

Your request for a remortgage for bad credit might be ignored even by your existing lender, let alone other potential creditors.

Also, if a lender agrees to process your remortgage application, you may find the terms and conditions challenging to fulfill.

If a lender or creditor rejects your remortgage request because of your weak credit report, do not take it personally. Most individual and institutional lenders will treat your reduced credit remortgage application identically.

They’d review first loan applications from persons with unimpressive credit history. Most lenders believe that a poor credit score suggests that a particular individual is incapable of managing their finances.

Getting the remortgage

Nevertheless, take it in stride if your application for a remortgage with bad credit gets turned down by your provider. Remortgaging with poor credit is very much possible, but you may have to put up with a lot of roadblocks.

Whether you’ll get a remortgage or not will, by and large, depend upon issues that made your credit score decrease and the value of your property.

Lenders are wary of borrowers with bad credit history, deeming their credit report is unlikely to improve in the short term.

However, you have numerous other avenues for remortgaging, your weak credit report notwithstanding. For instance, you can research lenders who will not regard your credit history as the sole criterion for considering your remortgage for a bad credit application.

On the other hand, you can talk to a broker or negotiator instead of running from one lender to another. Do not let your poor credit history discourage you from setting up an appointment with a remortgage agent or mediator.

When you decide to meet a mortgage broker, you can bet the professional will be able to offer you various remortgaging options.

One effective way of dealing with poor credit remortgaging is determining your LTV (loan to value) ratio. Many lenders and financial institutions will want to have a look at your LTV rating before approving your remortgage with poor credit requests.       

Remortgage with bad credit: the rate of interest

If you remortgage with bad credit, you might have to pay interest at a higher rate compared to a standard remortgage. And if your reduced credit incidents took place recently, then the likelihood of paying high-interest rate increases.

Apart from the time factor, the nature or type of your unfortunate credit issue will also make a big difference.

For instance, an IVA or CCJ incident will have a far more significant adverse influence on your remortgage for bad credit than a few credit-card defaults.

However, if you make earnest efforts to boost your credit score following the occurrence of weak credit events, you can negotiate for lower rates.

Nevertheless, you should keep in mind that you’ll need to contact specialist lenders with your application as mainstream lenders will not show any interest.       

Bettering your credit score before remortgaging

• Request your credit report and see if the details are correct and up-to-date
• Ensure your name is there on electoral lists
• Revise your personal information and information on the credit reports regularly
• Keep note of all of your due payments and follow your calendar for clearing bills on respective due dates
• Be very careful not to exceed your prescribed credit limit
• Steer clear of taking out a payday loan
• Unsubscribe from or cancel all credit accounts that you hardly ever use    

Can I remortgage with bad credit?

If you’re looking for a loan while asking yourself, “Can I get remortgage with bad credit?” then you should not despair.

If you research intensively, you’ll come across a few lenders who’d be ready to lend even if you’re seeking a remortgage with bad credit. The equity locked in your home or property might hold the key for a HELOC or home equity loan approval.

A HELOC or home equity line of credit provides you money when you require it. Home equity loans, on the other hand, come in handy when you need to withdraw a large sum at one go.

And you’ll be pleased to know that you don’t need a high credit score to qualify for a HELOC or home equity loan.

Establish how much equity there is on your property

Generally, you can apply to receive up to 80% (90% in some circumstances) of the equity of your home. The exact amount you can borrow is worked out or calculated using the LTV ratio.

Let us consider a scenario to clarify how much you can borrow against your property. Assume that you’ll get $4,000,000, by selling your home going by current market rates.

You’ve already paid $2,000,000 as a home loan reimbursement, which means that you still owe $2,000,000 to the lender.

So, your LTV is 50%. Therefore, if a provider lets you borrow up to 80% LTV, you could get up to 1,200,000.

$4,000,000 x 0.80 (80%) = $ 3,200,000-$ 2,000,000 =1,200,000.  If you can precisely find out your home’s current market value, together with how much you still have to pay will let you calculate the LTV.

You can submit the figures to a potential lender who will then use the calculations to work out how much you can borrow.   

Crosscheck your debt-to-income ratio

More often than not, your application for a HELOC or home equity loan, sometimes called a second loan, will be accepted even with a poor credit score.

A HELOC works very much like hypothecation, where you offer your property as collateral for securing the second mortgage. However, your prospective lender will still look at your credit history before approving the mortgage.

So, your credit score or credit report matters a lot when you’re seeking a home equity loan or HELOC. Hence, you’ll need to determine your debt-to-income ratio to figure out if your HELOC application will be accepted or not.

If your DTI ratio is in the lower 40s or below, lenders will consider your request favourably.

It’s all about striking the right balance between your DTI and credit score. If your credit score is good enough, even an unusually high DTI will not hinder your chances of a HELOC approval.

On the other hand, a DTI in the lower ranges might work in your favour if your credit score is under 620.

You can explore the mortgage refinancing option

You can explore the mortgage refinancing option if you feel that you may not qualify for a HELOC or home equity loan. Mortgage refinancing entails working around your initial mortgage with assistance from a lender to receive a portion of the equity (on your property) as a component of the remortgage.

Calculate the credit score required to qualify for a remortgage

Conventional lenders will expect you to have a credit score of at least 620 (the higher, the better) to go through your remortgage for a bad credit application.

However, you should also think about comparing your DTI and LTV ratios with your credit score and trying to strike a reasonable balance between the figures. 

Find a great deal on your next mortgage

Whatever term suits your budget we can help you find a solution. Ratewise can match you with a local broker that knows how to help—regardless of your credit score! Get pre-approved today.

Can I remortgage with bad credit?

You can remortgage with bad credit, although you may not get as good of a deal as you would if you were applying with a higher credit score.

Your lender may charge a higher interest rate so consider taking a few months to raise your score before you apply.

How much does remortgaging cost?

The cost of remortgaging includes legal fees of around $1,000 to set up your new deal. If you have a high mortgage balance still, your new lender may help you cover the fees. 

How do you remortgage?

To remortgage, you switch from one mortgage lender to another. You would need to apply to remortgage with the new lender and be approved.

Remortgaging is only worth it when you can get a better interest rate than what you already have. 

Why should I remortgage?

You should remortgage if you are unhappy with your current mortgage terms or interest rate. Remortgaging can potentially get you a cheaper rate and save you money in the long run.