Remortgage With Adverse Credit - Not Likely

Terminology Note: This article uses the term remortgage instead of refinance because it is intended for a UK audience. Though the terminology is different, the concepts themselves are universal.

Question: “Is it possible to remortgage with adverse credit, and if so how would I go about it?”

Depending on how bad your credit is, it might be possible. But it probably won’t work out in your favor. When it comes to remortgaging, the key to success is to secure a lower interest rate on the new loan, so you can save more than you spend. But having adverse credit makes it harder to get a decent rate on the new loan.

This will all make more sense if we discuss the process that takes place when you remortgage your house, and what the whole point of it is. So let’s start with the basics:

How Does a Remortgage Work?

Remortgaging is the process involves replacing your current mortgage loan with a new one, usually from a different lender. The new lender will pay off the existing balance you owe to your original lender.

Why do people do this? There are several reasons to remortgage a home. Some people do it to pull money out of their home, leveraging the equity they have. Some people do it to consolidate other debts. But the most common reason to remortgage a home is to secure a lower interest rate on the new loan, which saves you money over the life of the new loan.

I’d like to restate that last point, because it has a lot to do with our topic of discussion. Most people switch mortgages in order to secure a lower interest rate, thereby saving money. But if you try to remortgage with adverse credit, you wont’ qualify for the lender’s best rates. What does this mean? It means that you may not save enough money (with a lower rate) to offset the cost of the remortgage process.

Remember all of those fees and costs you had to pay on your first mortgage loan? Well, you will have to pay them again on the new loan. And if you end up paying more in fees than you’ll end up saving on the new loan, it doesn’t make much sense to remortgage the home. This is how adverse credit hurts you during this process.

The Problem With Adverse Credit

When you approach a lender to apply for a loan, they will check your credit. They will also review your current income, the amount of debt you are carrying, and other financial factors. If you meet the lender’s definition of a “well-qualified borrower,” you’ll qualify for a low interest rate. As a result, you’ll probably save enough money to make the remortgage process worthwhile (as long as you stay in the home long enough). But with adverse credit, a remortgage might not work out so well.

What Can You Do?

If you currently have adverse credit, you basically have two options. You can try to move forward with the remortgage process, and hope that the interest rate works out for you. Or you can delay remortgaging until you have improved your credit situation. Which option you choose will depend on how bad your credit is, what kind of rate you can get from a lender, and your long-term plans. So it’s not the kind of choice I can help you with.

If you choose to move forward with the process, you should get offers from several different lenders. Depending on how bad your credit is, some of them might reject your application entirely. If you do get some positive offers, you still need to do the math. You need to find out how much money you can save each month (after the remortgage process), and then compare that to the amount you’ll have to pay (in remortgaging fees).

Here’s my best advice. Talk to some lenders and see what they can do for you. It’s the only way to find out where you stand. The worst-case scenario is that you get turned down, so you have nothing to lose. At least you’ll know what you need to work on, in order to get approved the next time around.

This article deals with UK adverse credit remortgage, from a borrower’s perspective. If you would like to learn more about this subject, use the search tool at the top of the website. We have many articles and tutorials available, and we publish new information weekly.