There are several reasons why you might consider remortgaging.
Perhaps you want to borrow more, or maybe your existing fixed-rate or tracker mortgage deal has ended and you want a better interest rate.
Just as with applying for a mortgage, when you apply to remortgage the lender wants to see how responsible you’ve been with borrowing in the past. They do this by looking at your credit history, which shows all your borrowing activity over the last few years.
If they can see that you’ve financially struggled - maybe you’ve fallen behind with your repayments - lenders might conclude you’re a risky borrower and turn you down.
Will my bad credit history hold me back?
A negative credit history can close off some of the best deal on the market to you. But it doesn’t necessarily mean you won’t be able to remortgage.
Each mortgage provider has their own criteria. So being turned away by one lender, doesn’t mean that you’ll be rejected by them all. Instead, you might be offered a higher interest rate than someone with a good credit history, due to the risk you pose.
Although there’s no way of knowing what each lender’s decision making process involves, the one thing we can be certain of is that your credit history will be checked. Lenders want to know that they’re lending to a responsible borrower.
If you have previously missed payments or ever been issued with a CCJ (County Court Judgement), these negative marks will remain on your credit history for up to six years. There are lenders who specialise in providing remortgage deals to borrowers with a poor credit history but, as we mentioned, you may need to be prepared to pay a higher rate.
It’s worth using a mortgage calculator to work out your affordability. This way you can see what your monthly payments could be for the mortgage you want and check whether you can comfortably afford them.
This is especially handy if your circumstances have changed since you took out your last mortgage. After all, you should only borrow what you can afford to pay back.
Remember, if you miss any repayments, this will cause further damage to your credit history and could put your home at risk of repossession.
This is why it’s vital you have a clear understanding of what you can afford to pay towards your mortgage each month.
The next step is to shop around for a competitive deal. Don’t make the mistake of just narrowing your search to your current lender. You might be able to grab a better interest rate elsewhere using a comparison website.
The thing is, a bad credit history is not the only thing lenders will consider when you apply to remortgage.
They’ll also look at the amount of equity you have in your home to determine the level of risk of lending to you.
As you pay off you mortgage, your equity should slowly increase while your loan-to-value (LTV) decreases. So, by the time you remortgage, your LTV should be smaller than when you took out your mortgage. This means you’ll typically be offered better interest rates.
It’s important to work the equity you own before applying to remortgage. You can find out how to do this here.
When you apply to remortgage, lenders will typically treat you like a brand new borrower. As well as your credit history, they’ll consider your current income and outgoings. This is to check that you have room in your budget for the new mortgage repayments, even if interest rates increase.
In the lead-up to your current mortgage ending, it’s a good idea to look at ways you can improve your credit history. This can put you in a better position to grab a competitive remortgage deal.
Keeping up with you existing credit agreements – like any loan or credit card payments – will help build up your credit history. For details on how to give your credit history a boost, head here.
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Intelligent Lending Ltd (Credit Broker). Capital One is the exclusive lender.