Bad Credit Remortgage - Is That The Way Forward?
In the UK, bad or adverse credit remortgages are something of a boom industry. Consumer debt is rampant, and the Citizen's Advice Bureau are overrun with people who have debt problems. Many others never even seek advice about their financial problems. They have multiple debts: credit cards, store cards, car loans and home improvement loans, all taken out in optimistic times when the feel good factor was high. But without proper budgeting, or a change of fortune, there comes a time when the monthly payments are difficult to meet; then they are late with paying and the road to bad, or adverse, credit status has begun. With so much of their wealth tied up in property, Britons are quick to consider remortgaging.
Often, though, people are not poor in asset terms. They have their own home which is mortgaged, but it has plenty of equity which is theirs. So the idea of a remortgage, to unlock some of that equity, is sure to emerge as an option at some stage. By remortgaging their home, even with bad credit, homeowners can, or may, have a chance to put their financial house in order once and for all.
What Should You Consider Before Taking Out A Bad Credit Remortgage?
Taking out a bad credit remortgage is not something to be taken lightly. You need to give careful thought to the costs, any consequences, and even if it is actually necessary or can be avoided. What do you need to take into consideration, then, before applying for a bad credit remortgage?
1. Firstly, it is sensible to try to take a detached look at your need for a remortgage. Do you actually need it, or is there another way that is less costly and drastic? Stand back from your situation, and take a close look at some crude figures. List out your outstanding debts, add the amounts owed, total the monthly payments, and calculate the amount in arrears. Is it really as bad as you feel under the pressure of a few late payments? Here are a few tips in how to decide if you can avoid remortgaging:
Examine ways you can clear those overdue amounts. Take a very close look at your home budget, your expenditure, item by item. See if you can find any regular expenses which can be reduced or cut out altogether. If you find any, take the necessary action, and then ensure the savings go towards reducing at least one of the outstanding debts where some amount is overdue. Also, as this is likely to take some months to clear the overdues, write to your creditors and explain the steps you are taking to pay off the overdue amount. That may remove the pressure from you while you get your finances in order again. It may also remove the need to remortgage, which can be expensive if you have bad credit.
Is it possible for you to raise some extra money somehow? Could you do some overtime to help you clear the overdue debts and allow you to put your financial house in order? Could you do some extra part time work? If you take no action at all, your financial situation will deteriorate. If you do something positive, it will give you a boost and you may avoid the costs and hassle of remortgaging your home
Do you have any things around the home and garage you do not use? Are they worth selling to clear some of your debts? Can you sell some old shares, or raid an old savings account you have maybe forgotten about?
2. It is advisable to consider alternatives to a bad credit remortgage. Maybe a debt consolidation loan. Shop around to get some quotes for consolidation loans, and be ready to compare the results with a bad credit remortgage. Be sure to make a note of the costs of each of the loan options, as this may affect your decision one way or the other.
3. If you were not able to come up with any savings from your monthly budget, and found no hoard of savings under the mattress or anywhere else, then perhaps it is time to get some remortgage quotes. If you have a bad credit record, some brokers and lenders may try to get more money out of you than is really justified. You should try to get the best deal possible. Even a small interest saving mounts up over the term of a mortgage. Also, you should look very closely at the charges of the lender and broker, if you have a broker, and keep a record of them, ready to use in your calculations to decide whether you should take out a bad credit remortgage or not.
4. Finally, you should compare using a bad credit remortgage with using a debt consolidation loan. This you should do over the full term of the mortgage. What you will be comparing in practise is:
Remortgage costs, interest rates and repayments based on the the best quote you have had,
with
Your current mortgage plus the costs of the consolidation loan.
This is important, as the bad credit remortgage may have a higher interest rate than your existing mortgage. If you are not comfortable with figures then ask a friend who is to help you or seek a counsellor.
Once you have written down the figures, you may find the choice is quite obvious. Remember, though, that with the option of keeping your existing mortgage and having a separate debt consolidation loan, you will no longer have any repayments at the end of the term. That is the reason it is critical to consider the whole mortgage period to compare the options open to you.
© Roy Thomsitt 2005
I am grateful to Andrew Baker for providing the additional article below on bad or adverse credit remortgage. I am firmly of the belief that the more you read before making any major financial decision, the better.
Adverse Credit Remortgage: Refinance at Better Terms
Getting a remortgage with adverse credit is a daunting task and it is increasingly becoming a widespread problem in UK. An adverse credit remortgage is a type of mortgage, which is particularly used by people who have adverse remarks in their credit history.
Adverse credit ratings are rising as people are finding it difficult to repay the loans they took in order to remedy their financial exigencies. The credit ratings are remarks given by your previous creditors based on your repayment history. If you are punctual and prompt in repaying the installments they give you a positive remark and a negative rating incurs, if you miss their installments and are erratic in the repayment schedule.
Lenders are wary of this negative or adverse credit rating. They find it risky to lend any amount to such persons and reject their applications in most of the cases.
While, applying for an Adverse credit remortgage, the borrower has to face two kinds of situations. In the first case, although he has an adverse credit rating against him, he can offer something like a house or home equity as a collateral to the remortgage. In second case the borrower with the adverse credit history doesn’t have anything to offer as collateral or the value of collateral is not adequate to guarantee the loan.
The lenders, if they find that they can get something as collateral for the remortgage offer, are prompt in lending as compared to a situation where they have to lend solely on the basis of creditworthiness of the borrower. The lenders are comfortable by the fact that if the borrower defaults in payments, they can repossess the collateral. Depending on the collateral and creditworthiness, lenders fix interest rates, lending amount and the repayment schedules.
Remortgaging involves changing the mortgage without changing the existing house or property. Adverse credit remortgage can be used for getting a better deal on mortgage from a different lender. It can also be used to get an improved deal on mortgage from the existing lender. Adverse credit remortgage may also be used to provide funds or to get a loan on the increased equity in home or property. They are very useful in consolidating existing debts from various sources into one single manageable loan. Emergency expenditures like the purchase of a car, a holiday, some reconstruction or medical bills can be funded by such remortgages.
Getting an adverse credit remortgage to finance these purchases is considered a wise option because remortgage offers lower interest rates and easy repayment options as compared to other methods of borrowing.
People with adverse credit should be very cautious while taking a remortgage. Mortgage lenders in UK are squeezing such people with higher interest rates and unreasonable terms and conditions.
Remortgaging involves many fees, which increase the cost of the process. There are early redemption penalties, re-appraisal of property, solicitor fees, office and conveyance charges, which have to be taken into consideration while taking an adverse credit remortgage. The fact that a borrower has an adverse credit rating makes the situation even worse for him. As the lending market in UK is very competitive the borrower is advised to shop around for lenders, which offer zero product fees, cashback, free basic property valuation and minimum fee for legal and other expenses. A good lender, who provides adverse credit remortgage will negotiate the best possible deal on prepayment penalties for its client. Finding such a lender is not easy but ultimately it will be worth the effort.
For most of us, if we have something to offer as collateral, getting an adverse credit remortgage will be quite easy. The new lender will ask for all the documents and complete the formalities. If everything goes smoothly, it won’t take long to get an adverse credit remortgage.
Andrew baker has done his masters in finance from CPIT. He is engaged in providing free, professional, and independent advice to the residents of the UK.He works for the Secured loan web site uk finance world for any type of uk secured and unsecured loan please visit http://www.ukfinanceworld.co.uk