How to refinance your home (even if you have a bad credit rating)

We’re probably all going to need to borrow money at some point in our lives. Whether it’s a mortgage to buy a house, signing up for hire purchase in order to buy a car or using a credit card to do a weekly shop, taking out finance has, for many of us, become a part of our everyday lives.

Unfortunately, for those with a bad credit rating, borrowing money can be difficult. For small amounts, it is possible to apply for, for example, bad credit loans. For larger amounts, things can be a little tougher. Refinancing your home can be particularly tricky if you have a bad credit rating.

What is refinancing?

When people talk about refinancing their homes, they usually mean that they are replacing (paying off) their existing mortgage, with another mortgage. This is also sometimes called a remortgage.

This could be sticking with your existing lender or moving to a new lender.

Refinancing could involve increasing your mortgage so that you can take the extra chunk of money in cash.

Why refinance at all?

People want to remortgage their homes for a range of different reasons. They may want money to carry out some home improvements or even build an extension.

On the other hand, homeowners may want to refinance their home in order to obtain a new mortgage with lower interest rates and, in turn, potentially lower their monthly repayments.

Alternatively, it may be that a home has increased in value and it could be possible to get a lower loan-to-value (LTV) ratio and, therefore, possibly a better deal. This is because the more equity you have in your property, the lower mortgage interest rate you’re likely to get.

Refinancing your home with a bad credit rating

There’s no hiding from the fact that refinancing your home with bad credit history can be a great deal harder than if you have a good credit score. This is because a lender may see you as more of a risk. Put simply, if you have had problems repaying credit in the past, you are more likely to have problems in the future.

Obviously, how much difficulty you have refinancing your home, will depend on how bad your credit history actually is and how long ago you, for example, missed repayments on your mortgage. Refinancing with high street banks when you have bad credit can be difficult.

The good news is, that there are lenders out there who do consider those with bad credit. There are even mortgage providers who specialise in those with CCJs. However, it’s important to be aware that these specialist lenders tend to charge higher interest rates. Which? has compiled a list of bad-credit mortgage lenders on its website.

Rebuilding your credit rating

If you have more time, you could consider rebuilding your credit score.

There are various ways to do this, such as proving that you can repay debt by taking out a credit ‘rebuild’ card, spending a small amount on it and then paying it off in full, each month.

Refinancing your home with bad credit is not impossible, but it is more difficult. Do you research on a particular lender before applying, in order to ensure that they will accept applications from people in your particular circumstances.