Given the recent economic climate, it may come as no surprise that finding lenders for those with bad credit is not easy. Then there are people whose credit and mortgage loans have already slipped. Their credit is getting worse every day and they’re having a hard time keeping up. At lot of these mortgages have adjustable rates, which tend to be at least partially responsible for the credit problems many people face. This is where the adverse remortgage can come in.
The adverse remortgage is also called an adverse credit remortgage. This is because these loans are designed for those with less than ideal credit ratings. This type of loan allows the homeowner to pay off the current mortgage and take out a new loan that has rates that are more favorable.
If you have good credit, an adverse remortgage is probably a bad idea, as associated fees and interest rates are typically higher than those you’d obtain with traditional refinancing.
The credit records of those seeking adverse remortgages are usually divided into three different levels based on risk as identified by their credit report. Those who are only a little behind in payments and have no judgments against them or bankruptcies are assigned to a low risk group.
People who have a long history of credit difficulties, have one or more judgments against them of low value, and have no bankruptcies are assigned to a medium risk group. Everyone else is considered ‘high risk’.
The nice thing about an adverse remortgage is that the lender looks not only at the credit trouble the person taking out the loan has gotten into, but also the steps that person has taken to try and remedy the trouble and what caused the problem in the first place. The primary factor is how well the person is doing at making the current payments on their existing mortgage.
After the risk level of the person taking out the loan has been determined, the lender will determine what rates should be offered; these will usually include a higher fixed interest rate because of the higher risk the lender is taking. Usually, your interest rate will be relatively high, but still more advantageous to you than your current adjustable rate mortgage. They will also open up the possibility of paying off other debts, such as credit cards, to create a lower monthly payment overall.
Unfortunately, since most banks are having to be careful about how they are lending their money, it is becoming more difficult to get adverse remortgage financing. One factor that can make it easier, however, is having a good relationship with the bank that owns the current mortgage. Most banks are willing to work with all but the absolute highest of credit risks in order to avoid having to have a property go into foreclosure.
Banks know full well that the only way they are going to sell a foreclosed property in the current housing market is by taking a serious loss on it. These banks also understand that by allowing homeowners to take advantage of an adverse remortgage, it’s more likely that they’ll be repaid completely.