Refinancing your mortgage might be worth exploring, even if your credit history isn’t perfect. While it can be difficult, it can also be a beneficial financial move – it can lower your monthly repayments, extend your repayment period, and provide access to more flexible policies.
Below, Freedom Loans lists five refinance options you can consider if you have bad credit.
Refinancing with Your Current Lender
Often, your existing lender may be more inclined to work with you despite your poor credit score. By renegotiating your mortgage terms, you can potentially secure a deal that makes your repayments more manageable – your current lender might offer a reduced interest rate or more flexible repayment terms to help you avoid late payments and reduce the risk of default. This approach is beneficial to both parties, as it helps you maintain your loan and prevents the lender from losing a customer to a competitor.
Staying with your current lender also means you can avoid many of the additional costs and complexities associated with switching lenders. Since your current lender already has your financial information, this can streamline the refinancing process.
Consolidating Your Debts
Debt consolidation through mortgage refinancing is an effective strategy if you have a bad credit rating. By consolidating your various debts – such as personal loans, car loans, and credit card balances – into a single mortgage, you can benefit from the typically lower interest rates associated with home loans.
Additionally, refinancing to consolidate debt can enhance the serviceability of your loan, meaning your repayments become easier to handle. This process helps you pay off high-interest debts faster, which can improve your credit score and lead to significant savings over time. Moreover, debt consolidation streamlines your finances, as you only need to keep track of one monthly repayment instead of multiple payments to different creditors.
Short-Term Refinancing with a Specialist Lender
When you have a bad credit rating, short-term refinancing with a specialist lender can be a practical strategy. Specialist lenders cater to borrowers with poor credit histories, offering more flexible guidelines compared to traditional banks. While these loans generally come with higher interest rates, they provide a valuable opportunity for those who might otherwise struggle to secure refinancing. This approach can be particularly ideal if your credit issues are temporary or due to specific circumstances, such as paid defaults that will remain on your credit file for a few more years.
Short-term refinancing with a specialist lender allows you to manage higher interest costs in the short term while working towards improving your credit score. Once your credit file improves and you meet the standard requirements, you can refinance again with a major lender to secure better terms and a lower interest rate.
Applying with a Co-Borrower
Applying with a co-borrower when refinancing with a bad credit rating can significantly enhance your chances of approval. A co-borrower, typically someone with a better credit score, shares the responsibility of the loan. The joint application allows both of your credit scores and financial assets to be considered, making your refinance application more appealing to lenders and potentially securing you more manageable loan terms and a more favourable interest rate than you could achieve on your own.
Refinancing with a Private Lender
Refinancing with a private lender can be a good option if you have a bad credit rating and struggle to get approval from traditional banks. Private lenders, such as mortgage fund holders or high-net-worth individuals, offer loans secured by either a second mortgage or a caveat. These loans often come with higher interest rates, often ranging from 2% to 6% per month, and should be considered a last resort due to their cost.
The primary advantage of refinancing with a private lender is the flexibility and speed of approval, as these lenders are less stringent with their credit requirements. This can provide immediate financial relief and prevent foreclosure or other financial crises.
However, it’s crucial to use this option as a short-term solution. Aim to refinance with a private lender for the shortest term possible, then switch to a more conventional lender once your credit improves and you meet standard borrowing criteria. This approach allows you to stabilise your finances and work towards a more sustainable long-term financial plan.
Final Thoughts
When you have a bad credit rating, refinancing your mortgage can be challenging but certainly not impossible. By exploring the refinance options above, you can find a solution that suits your situation and helps you achieve better financial stability.
Consider consulting with our mortgage experts at Freedom Loans – we’ll share our valuable insights and guide you towards making your refinance successful.
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