It’s possible to refinance a home loan if you have a bad credit score. But it’s important to understand that if you do get your application approved, the lender might require any or all of the following:
- a higher interest rate on your loan.
- you to pay for lender’s mortgage insurance (LMI) if you have less than 20% equity in your home.
- you to provide a guarantor.
5 steps to refinance a home loan with bad credit
Lenders will check your credit score when they assess your refinancing application. You can improve your chances of having a refinancing application approved if you have a bad credit score. You can do that by following these 5 steps before you apply.
Step 1: Check your credit score
You can get your current credit score for free from credit reporting agencies like Equifax.
Step 2: Get up to date with any overdue repayments
This will help you to improve your credit score. You should then make sure you make all your repayments on time for at least 6 months before you apply to refinance your home loan.
Step 3: Review your overall level of debt
If you have multiple debts, you should consider applying to consolidate them all into a refinanced home loan. This will make your repayments easier to manage.
Your home loan will also have a lower interest rate than other debt you have (like personal loans and credit cards). This means you’ll pay less interest by consolidating those higher-interest debts into your home loan.
Step 4: Research the market to decide whether you should switch lenders
You don’t necessarily have to refinance with the same lender. If you don’t have the time or the knowledge to compare the home loan products of different lenders, you can get a mortgage broker to do this on your behalf.
Step 5: Assess the costs and benefits of refinancing
The benefits of refinancing should outweigh any costs of doing it. Benefits of refinancing can include:
- reducing your overall debt repayments.
- enabling you to have a single repayment for all your debts, rather than having multiple payments.
- helping you to avoid having your home repossessed by your existing lender.
Costs of refinancing can include:
- Discharge fees to pay out your existing loan.
- New loan application fees
- New loan mortgage registration fees
- Property valuation fees
- Ongoing fees on your new loan.
However, if you’re switching lenders, your new lender may be willing to negotiate on some of these costs.
Ultimately, whether refinancing is worth it depends on your individual financial situation.
How we can help
At Wisebuy Investment Group in Newcastle, our licensed and experienced mortgage brokers can help you to refinance your home loan. And best of all, our service is free!
In addition to home loans, our range of services include:
- personal loans
- commercial loans
- asset and equipment finance.
Contact us today for an obligation-free chat to find out more. We’d love to hear from you!